Allied Home Mortgage sued for lending fraud

Federal prosecutors recently filed a lawsuit against U.S. mortgage broker Allied Home Mortgage Capital for alleged lending fraud that has been going on for a decade, costing the government hundreds of millions of dollars in home loans. The prosecutors believe the lender violated the federal False Claims Act by leading the government to believe the bank's loans qualified for federal insurance. The loans, however, were weak, and more than 30 percent of them resulted in default.

Reuters reported the prosecutors claim the U.S. Department of Housing and Urban Development lost more than $834 million in insurance claims due to the shoddy practices, while thousands of homeowners were evicted from their homes. The federal government said 35,801 - or nearly 32 percent - of HUD-insured mortgages from Allied made between 2001 and 2010 ended in default, and the default rate reached 55 percent in 2006 and 2007.

The New York Times reported that HUD has stopped insuring loans from Allied and is seeking to prevent two of the bank's top executives from participating in government programs to avoid further fraud and damages to the government and homeowners.

According to the lawsuit, Allied was operating 600 branches at one time, with only two quality-control employees, leaving branch managers liable for the branch's financial obligations. If a branch was profitable, the bank collected the revenues. If it stopped making money, the branch was closed with no regard for the employees or borrowers, prosecutors said.

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