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Allied Home Mortgage Asks U.S. Judge to Restore FHA Lending Privileges

Allied Home Mortgage Corp. asked a federal judge to restore its ability to originate and underwrite Federal Housing Authority-insured home loans, after U.S. officials suspended those privileges last week.

The U.S. Department of Housing and Urban Development sued Allied Home Mortgage and James C. Hodge, its chief executive officer, on Nov. 1 over allegedly fraudulent practices. The agency suspended their FHA lending privileges the same day.

U.S. District Judge Melinda Harmon on Nov. 3 rejected Hodge’s request for a temporary restraining order against HUD, only to reverse herself a few hours later and ask the department and Hodge to provide more information at today’s hearing in Houston. Harmon told lawyers she would issue a decision by the end of the week.

Government lawyers told Harmon that Allied and Hodge have been playing games with HUD regulations for a decade.

“They’ve had 10 years to explain their actions,” Assistant U.S. Attorney Jaimie Nawaday told the judge. “HUD reasonably said enough is enough.”

Hodge, testifying today, said he and his companies hadn’t engaged in the improper conduct alleged by the government.

“I have no idea what they’re talking about,” Hodge told Harmon. “I have never ever told someone to commit fraud.”

Hodge has said that the immediate loss of FHA privileges would “effectively kill Allied Corp. as an ongoing business” and eliminate 723 jobs. Houston-based Allied, which last year called itself the largest closely held mortgage broker in the U.S., sued to prevent the government from suspending the company’s FHA lending capabilities until the lawsuit was resolved.

‘Half-Baked’

“This is a half-baked attempt to put another mortgage broker out of business so HUD can say it is cleaning up the industry,” said Bruce Alexander, Hodge’s attorney.

Allied said HUD’s complaints are with a company that preceded Allied Home Mortgage Corp. Although both companies are controlled by Hodge, Alexander said they are separate and the later firm has no successor liability.

Harmon denied a U.S. request to move Hodge’s suit against HUD to New York, where the government has sued Allied for the allegedly fraudulent practices.

The government claims that one-third of the 112,324 loans originated by Allied from 2001 through 2010 have defaulted, forcing HUD to pay $834 million in insurance claims, according to a complaint filed in federal court in New York. The U.S. is seeking triple damages from Allied under the federal False Claims Act.

Hodge, in his suit against HUD and Housing Secretary Shaun Donovan, countered that his company’s “performance numbers are exemplary.”

“I’m not here to say Mr. Hodge is a saint, or that Allied Corp. has a completely spotless record,” Alexander told Harmon. “Precious few people or corporations do. But they are not summarily suspended without notice and with such flaws in the facts.”

The cases are Allied Home Mortgage Corp. v. Donovan, 4:11- cv-3864, U.S. District Court, Southern District of Texas (Houston); and U.S. v. Allied Home Mortgage Corp., 11-cv-5443, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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