Feds sue mortgage broker, alleging lending fraud

[hvactec]

NEW YORK — The federal government sued one of the nation's largest privately held mortgage brokers on Tuesday, saying its decade-long fraudulent lending practices cost the government hundreds of millions of dollars and forced thousands of American homeowners to face eviction.

The lawsuit in U.S. District Court in Manhattan sought unspecified damages and civil penalties and named as defendants Houston-based Allied Home Mortgage Corp., founder Jim Hodge and Jeanne Stell, the company's executive vice president and director of compliance.

Joe James, a company spokesman, said he was aware of the lawsuit but had not yet seen it. He declined immediate comment.

In the lawsuit, the government said Allied until recently had the authority to originate mortgage loans insured by the U.S. Department of Housing and Urban Development, or HUD.

It said nearly 32 percent of the 112,324 home loans originated by Allied between Jan. 1, 2001, and the end of 2010 have defaulted, resulting in more than $834 million in insurance claims paid by HUD.

The lawsuit said the default rate climbed to "a staggering 55 percent" in 2006 and 2007, at the height of the housing boom, when the government paid $170 million to settle Allied's failed loans.

The government said Allied made substantial profits through the loans while it violated rules meant to protect HUD's insurance fund and deceived the agency by originating loans for years out of hundreds of "shadow" branches that were not approved by HUD.

The deceitful practice was continued under Hodge's direction even after several senior managers voiced concerns, the lawsuit said.

"Allied operated with impunity for many years due a culture of corruption created by Hodge, who eliminated the position of chief financial officer and other senior management positions, intimidated employees by spontaneous terminations and aggressive email monitoring, and silenced former employees by actual and threatened litigation against them," the lawsuit said. "As a result, Allied was able to conceal its dysfunctional operations and maintain its profitable position in the mortgage industry."

read more Feds sue mortgage broker, alleging lending fraud - WSJ.com

 

[waltky]

Granny says, "Dat's right - sue `em, sue dey's socks off...

S&P expects US lawsuit over its mortgage ratings
Feb 4,`13 WASHINGTON (AP) -- The U.S. government is expected to file civil charges against Standard & Poor's Ratings Services, alleging that it improperly gave high ratings to mortgage debt that later plunged in value and helped fuel the 2008 financial crisis.

The charges would mark the first enforcement action the government has taken against a major rating agency involving the worst financial crisis since the Great Depression. S&P said Monday that the Justice Department had informed the rating agency that it intends to file a civil lawsuit focusing on S&P's ratings of mortgage debt in 2007. The action does not involve any criminal allegations. Critics have long complained about the government's failure to bring criminal charges against any major Wall Street players involved in the financial crisis. Criminal charges would require a higher burden of proof and carry the threat of jail time.

If S&P is eventually found to have committed civil violations, it could face fines and limits on how it does business. S&P denies any wrongdoing and says any lawsuit would be without merit. A federal lawsuit would "disregard" the fact that S&P reviewed the same data on risky mortgages as U.S. government officials, who said publicly in 2007 that the problems in the subprime mortgage market appeared to be limited, the company said in a statement. In the statement, S&P said it "deeply regrets" that its ratings on some securities "failed to fully anticipate the rapidly deteriorating conditions in the U.S. mortgage market during that tumultuous time." Justice Department spokeswoman Nanda Chitre declined to comment on the matter.

According to a report in the New York Times, the lawsuit will likely be brought this week after settlement talks between the Justice Department and S&P broke down last week. The talks collapsed over federal authorities' insistence that a settlement involve at least $1 billion, the Times reported. Judges have previously thrown out claims brought by investors against the rating agencies, on the grounds that their ratings amount to free speech protected by the First Amendment.

But that argument hasn't always succeeded in cases involving investments like those in the expected S&P suit, according to research by the Brattle Group, a consulting firm. That's because those ratings weren't published widely, as most bond ratings are. As a result, several courts have ruled that those ratings do not enjoy free-speech protection. S&P is a unit of New York-based McGraw-Hill Cos. McGraw-Hill's stock plunged nearly 14 percent Monday after reports surfaced about the government's expected lawsuit.

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