Mortgage Giant Faces Big Trouble Over Lending Practices

November 2, 2011

The U.S. Justice Department is suing Allied Home Mortgage, one of the country’s largest privately held mortgage brokers, and accusing the company of fraud, according to a civil lawsuit filed Tuesday in New York. 

The lawsuit alleges that the mortgage broker’s lending practices led to thousands of Americans losing their homes and “tens of thousands” of defaulted loans and cost the government hundreds of millions of dollars in losses. The lawsuit accuses Allied of violating FHA mortgage insurance requirements, claiming it “profited for years as one of the nation's largest FHA lenders by engaging in reckless mortgage lending."  

According to the lawsuit, prosecutors say about a third of the loans originated by Allied defaulted from 2001 through 2010, amounting to $834 million in insurance claims HUD paid. A default rate of “a staggering 55 percent” occurred in 2006 and 2007 alone, the lawsuit charges. About 2,509 more loans are currently in default, which could have HUD facing $363 million more in claims, according to the lawsuit. 

“The losers here were American taxpayers and the thousands of families who faced foreclosure because they could not ultimately fulfill their obligations on mortgages that were doomed to fail,” attorney Preet Bharara said at a news conference Tuesday announcing the lawsuit. 

Allied Mortgage, which operated 600 or more branches nationwide, has yet to comment publicly on the accusations. 

Source: “Allied Home Mortgage Is Sued Over Bad Loans,” The New York Times (Nov. 1, 2011) and Feds Sue Mortgage Broker Allied for Fraud,” NBC News (Nov. 1, 2011)

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