We reviewed Allied Home Mortgage Capital Corporation (Allied), a nonsupervised loan correspondent. The objective of the review was to determine the validity of a hotline complaint that Allied operated its branches in violation of U. S. Department of Housing and Urban Development (HUD) requirements.

The complaint was partially valid as Allied did not fully follow HUD's branch office requirements. Allied required branch managers to personally enter into certain contractual agreements, such as office space leases, equipment contracts, and utility arrangements, at all five branches reviewed. Also, Allied did not consistently pay rental, utility, and telephone expenses at all five branches. Further in one instance, Allied requested that a former employee use personal funds to cover branch operating losses. The allegation that Allied required its employees to indemnify it for loan losses was not valid. In addition, although not alleged in the complaint, testing disclosed that Allied hired an ineligible employee to originate Federal Housing Administration insured single family mortgages.

We recommend HUD's Assistant Secretary for Single Family Housing require Allied to immediately discontinue its current practices related to leases/agreements for all branch offices; adopt new practices and controls that require it to directly enter into leases and/or agreements; and implement the necessary policies, systems, and controls to ensure that it pays all required branch operating costs. Further, the Assistant Secretary for Single Family Housing should require the Quality Assurance Division to confirm that all Allied branch offices have appropriate agreements and take appropriate actions if compliance does not occur; and request the Mortgagee Review Board pursue civil money penalties and/or administrative sanctions as appropriate against Allied Home Mortgage Capital Corporation for the violations cited in this report. We also recommend that the Acting Director of the Departmental Enforcement Center pursue civil money penalties or take administrative action, as appropriate, against the responsible parties for the violations cited in this report.