It must be the first big case of fraud* arising from the real estate bubble of the previous decade. The case against Allied Home Mortgage Capital Corporation of Houston, Texas accuses the company of defrauding the federal government of at least $834 million, but it took years of warnings and sanctions from the feds before they took court action. The suit seeks triple damages and civil penalties which could total $2.5billion. The U.S. Department of Housing & Urban Development suspended the company from issuing new mortgages backed by the FHA or the Government National Mortgage Association (Ginnie Mae). Between 2001 and 2010 Allied originated 112, 324 home mortgages insured by FHA. 32% went into default resulting in the $834 million in insurance claims by Allied. In 2006 and 2007 the company's default rate was a staggering 55%. According to a Justice Department spokesman, Allied played a mortgage industry game of "heads I win, tales you loose". Allied bills itself as the nation's largest privately held mortgage broker/lender with 200 branches. The fact that it took the government this long to finally file suit against a serial abuser is indicative of the overall lack of fraud enforcement against the banking industry.
*Citigroup settled a billion dollar fraud case with a consent decree and a fine of $258 million, but it did not have to admit to being guilty of fraudulent derivatives trading. The federal judge overseeing the settlement is now asking how such a large fraud cannot be the result of willful and knowing actions.