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Corporate Crime and Kid Gloves

November 1, 2011 by and tagged ,

If you want to commit crimes, don’t mug old ladies for their Social Security money, don’t rob gas stations, don’t do anything related to drugs because you’re hurting the children and The War on Drugs will get you. All of these crimes will have you join the ranks of the world’s proportionally largest prison population in the US slammer.

No, if you want to commit crimes, go big, go corporate crime. Do that, and if, a big IF, you get prosecuted, you will be treated with kid gloves:

“Federal prosecutors sued Allied Home Mortgage Capital Corp. and two top executives Tuesday, accusing them of running a massive fraud scheme that cost the government at least $834 million in insurance claims on defaulted home loans.

Houston-based Allied and its founder and chief executive, Jim Hodge, were the subject of July 2010 stories by ProPublica, which detailed a trail of alleged misconduct, lawsuits and government sanctions spanning at least 18 states and seven years. Borrowers recounted how they had been lied to by Allied employees, who in some cases had siphoned their loan proceeds for personal gain. Some lost their homes.

Despite years of warnings, the federal government had not — until this week — impaired the company’s ability to issue new mortgages.

The suit, filed Tuesday in U.S. District Court in Manhattan, seeks triple damages and civil penalties, which could total $2.5 billion. Simultaneously, the U.S. Department of Housing and Urban Development suspended the company and Hodge from issuing loans backed by the Federal Housing Administration. The company was also barred from issuing mortgage-backed securities through the Government National Mortgage Association (Ginnie Mae).”

Whoa, talk about harsh punishment. See what they did here? No criminal prosecution. All in civil court. Feels like the equivalent to be sent to your room without dinner.

And to the Rick Santellis of the world: GFY:

“The government’s complaint alleges that between 2001 and 2010, Allied originated 112,324 home mortgages backed by the FHA, which typically go to moderate- and low-income borrowers. Of those, nearly 32 percent — 35,801 — defaulted, resulting in more than $834 million in insurance claims paid by HUD.

In 2006 and 2007, the company’s default rate was a “staggering” 55 percent, the complaint said.

In addition, another 2,509 mortgages are currently in default, which could result in another $363 million in insurance claims paid by HUD.

Borrowers told ProPublica last year that company employees falsified records to bolster their credit worthiness and lured them into unaffordable deals by lying about the terms.

The government’s complaint says: “Allied has profited for years as one of the nation’s largest FHA lenders by engaging in reckless mortgage lending, flouting the requirements of the FHA mortgage insurance program and repeatedly lying about its compliance.”"

Also, do you think a prosecutor would talk like that if she were talking about a street crime? (Remember, this is civil court, not criminal court with prosecutors)

“In an interview Tuesday, Helen Kanovsky, HUD’s general counsel, defended the time it took her department to take action.

“We had tried sanctions before,” she said. “We had assessed civil monetary penalties and that had not worked.

“The extraordinary remedy that we have — to be able to terminate somebody’s FHA capacity [and] basically put them out of business — requires a very high level of evidence and a high level of proof.”

The government’s 41-page lawsuit details an alleged scheme by Allied to deceive HUD about its employees and the risks associated with its loans. For years, it operated a network of “shadow” branches that were not approved by HUD and falsely certified that they met legal requirements.

Allied also disguised the high default rates of some branches, the complaint alleges, by tinkering with their addresses to apply for new HUD identification codes for the same offices. When HUD updated its system to prevent such manipulation, Allied simply moved all of its branches to a sister company and obtained new IDs, “thus again achieving a clean slate on its default rates,” the suit said. The sister firm, Allied Home Mortgage Corp., is also named as a defendant.”

I expect the defendants are shaking in their boots with fear and are thoroughly deterred by the prospect of being put out of business and civil sanction.

Posted in Corporatism, Social Deviance | 4 Comments »



4 Responses to “Corporate Crime and Kid Gloves”

  1.   Philippe Says:

    Very interesting story. Typical of the way those corporations milked the state without any serious consequence (yet?) for their gangsters/managers. It is the same scheme with all the pseudo “universities” selling degrees that are paid by subsidized/guaranteed loans but are never reimbursed since the students never complete the studies or never find the wonderful jobs that were advertised.

    Reply

  2.   Philippe Says:

    i had posted wrong url for my little fair taxes usa

    Reply

  3.   j woods Says:

    Ok let’s talk about reality. Last I checked B of A and a lot of other “Big Banks” have default rates of 150% of normal. If a bank lends in one of the sand states (CA, AZ, NV, FL) the default rates will be higher because the properties values have dropped and unemployment is up. I think a lot of banks may stop lending in these states all together if this law suit is won by HUD. Why risk lending there is it hurts you default rate. Last I checked having a copier bill or lease in the base lease in the wrong name does not cause Mr. Smith the generic borrower to stop making his payment. Should we just haul all of the bankers to prison for lending money? No Because we are in a recession and people who qualified for a home loan between 2001 and 2010 may not now because they lost their jobs or do not want to keep making payments on their homes loans that are upside-down.
    HUD would have never insured the loans in the first place if the borrower did not qualify for the loan. HUD would also have not given Allied passing ratings year after year if there was loan fraud. The suit never mentioned loan fraud. It mentioned breaking HUD business model rules. Criminal or civil hmm….. Let me ask all if any of you have ever done a stated income loan? Well I hate to break it to you, but you committed about 10 felonies when you lied on you application and the government can send you to prison for 50 + years and/or fine you into to bankruptcy I don’t think filling our over crowded prisons with home owners or bankers lending them money is a really good use of very scares government resources or a way to get us out of the recession or a good use of resources. I would really rather the money go to our roads and fire departments. The Alied laws suits smells like a witch hunt.

    Reply

    •   SocProf Says:

      Ok let’s talk about reality.

      Geez, nothing says arrogant prick more than an intro like that.

      I think a lot of banks may stop lending in these states all together if this law suit is won by HUD.

      BS. They made risky loans because they could package ad re-package them into all sorts of funny instruments to be sold to investors who could buy insurance against default. That’s the whole CDO / MBS mess. And banks are not the only institutions who can lend.

      Last I checked having a copier bill or lease in the base lease in the wrong name does not cause Mr. Smith the generic borrower to stop making his payment.

      No but being lied to regarding loan terms may help.

      Should we just haul all of the bankers to prison for lending money?

      No one suggests doing that. Pack up the strawman argument.

      HUD would have never insured the loans in the first place if the borrower did not qualify for the loan. HUD would also have not given Allied passing ratings year after year if there was loan fraud.

      And yet they did since they didn’t know there was fraud involved until they investigated. Also, rating agencies consistently f*cked up the ratings on all the toxic financial instruments.

      Let me ask all if any of you have ever done a stated income loan? Well I hate to break it to you, but you committed about 10 felonies when you lied on you application…

      Well, I don’t know who “any of you” is but I have not and have never lied on a loan application so you can shove your little bit of patronizing. It falls flat.

      Next time you wanna leave a comment. Pick a different tone and better arguments that actually address the article.

      Reply

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