In a lawsuit filed against the Department of Housing and Urban Development, Allied Home Mortgage Corp. — which says it is “on the brink of collapse” — claims that the entity which broke the rules on Federal Housing Administration loans is separate and distinct. In addition, any alleged shortcomings have been eliminated through a new operational entity which has exemplary performance.
A day after its Nov. 1 suspension as an approved FHAÂ mortgagee, Allied filed a lawsuit in U.S. District Court for the Southern District of Texas against HUDÂ Secretary Shaun Donovan and the housing agency itself. The branch operator seeks to have the suspension set aside.
In the complaint, Allied cited the Administrative Procedure Act in its move to obtain injunctive relief.
“Plaintiffs are entitled to relief pursuant to these provisions of the APA and the constitution because HUD suspended Allied Corporation and Hodge without notice and for actions that took place years ago, and for which Allied Corporation and Hodge should not be held responsible,” the complaint states.
Allied claims the alleged acts took place at least two years ago. In addition, it has since improved its operations, enhanced employee training and increased its compliance staff and corporate structure.
The lawsuit highlights how Allied Home Mortgage Capital Corp. and Allied Home Mortgage Corp. which is referred to as “Allied Corp. in the lawsuit, are distinctly separate entities. Allied Home Mortgage Corp. only acquired some assets from the Allied Home Mortgage Capital.
Court documents indicate that Allied employs 723 people and operates 152 active branches, though some of its best employees have already jumped ship and others have been terminated. But Allied Home Mortgage Corp. operated no branches prior to 2010.
However, in other seemingly contradictory statements, the plaintiff says that the FHA suspension will, among other things, cause Hodge to lose “the company which he built over the course of the past 20 years.”
While Allied Home Mortgage Capital Corp. was on Credit Watch, “Allied Corporation’s performance numbers are exemplary,” with only three loans out of 1,996 FHA loans originated since Oct. 1, 2009, being seriously delinquent and no claims having been filed. In addition, out of 4,226 loans insured for Allied Home Mortgage Corp. correspondents during the same period, just 99 are seriously delinquent — the same rate as the national average.
“The suspension of Allied Corporation’s authority to originated FHAÂ loans will force this company to close and would render unemployed nearly all of the 723 current employees,” the plaintiff claims.
Allied suggested that HUD’s claim the company employed a suspended principal, officer and director was referring to Hodge only because he was suspended as part of Allied’s Nov. 1 suspension.
The Houston-based company said that the immediate suspension by HUD “will effectively kill Allied Corporation as an ongoing business” because FHA loans account for 70 percent of its business and all of its warehouse lines will be terminated.
It has already been suspended by Fannie Mae, Freddie Mac, Ginnie Mae and the Department of Veterans Affairs as a result of HUD’s suspension. It has also already lost a big share of its business due to its FHA suspension.
“The relationships Allied Corporation has built with other companies are dependent upon Allied Corporation continuing to originate FHAÂ loans,” the lawsuit says.
While Allied’s FHA suspension will kill the company, the issuance of an injunction won’t harm the government at all, according to the lawsuit.
For its part, HUD has filed a motion to transfer Allied’s lawsuit to U.S. District Court for the Southern District of New York — where its own lawsuit against Allied is pending.
“As the issues in the instant proceeding before this court substantially overlap with the litigation pending in the U.S. District Court for the Southern District of New York, and as both cases would require consideration of the same evidence and because the litigation was first commenced in the Southern District of New York, the defendants would respectfully request that this court transfer the instant proceeding to the Southern District of New York,” HUD said in its motion.
Allied claims that HUD’s motion is simply an attempt to put off the hearing on the Allied motion for a preliminary injunction scheduled for Tuesday and effect the collapse of Allied. The company explained that the case filed in Manhattan federal court is against Allied Home Mortgage Capital, which is only an affiliate of Allied Home Mortgage Corp. and not related to its own lawsuit.
“As Hodge and his few remaining employees work feverously to attempt to save their company, which has been a HUD-approved FHA lender since 1992, forcing them to spend time in New York away from their place of business will simply cause the company to shut down before it has had an opportunity to defend itself,” Allied said in its opposition filing.
