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September 25, 2019

Banking Dept. says 1st Alliance used unlicensed ‘coordinators’ to make loans

PHOTO | CT MIRROR 1st Alliance founder/CEO John DiIorio and some of his remaining employees.
By Zachary F. Vasile | Journal Inquirer

For the first time Tuesday, the state Banking Department laid out in detail its main case against East Hartford-based 1st Alliance Lending, accusing the embattled firm of using unlicensed “coordinators” to gather information on potential customers before illegally steering them through the mortgage loan application process.

Before a packed hearing room at the department’s Constitution Plaza offices in downtown Hartford, attorney Stacey Serrano argued that 1st Alliance’s currently suspended mortgage license should be revoked entirely as punishment for deliberate violations of the SAFE Act, a federal law mandating the licensing of mortgage loan originators.

In Serrano’s telling, loan coordinators went beyond gathering information and actually set up sales that would then receive a rubber stamp from licensed personnel only at the end of the process. The highest-performing coordinators were rewarded with generous perks, including bonuses, fully compensated meals, and tickets to concerts.

“The company’s call center in East Hartford was a boiler room for mortgage lenders,” she said.

Serrano also asserted that, when questioned about their lack of credentials, mortgage loan coordinators always gave the same answer: The company is licensed, and that’s what matters.

Attorney Ross H. Garber, who is representing 1st Alliance, pushed back against the Banking Department’s narrative, claiming that home loan coordinators only prepared pre-qualification letters and were many steps removed from actually arranging or offering a loan.

In fact, Garber noted, coordinators never knew the address or value of the properties under consideration for a mortgage, making it virtually impossible for them to stray into the type of activity the state considers prohibited.

Lawyers for 1st Alliance also questioned the Banking Department’s interpretation of the SAFE Act, which they said has no basis in state statutes or case law and is not followed in any state other than Connecticut.

“I’m still unclear as to where the department staff’s understanding comes from,” Garber said.

Tuesday’s hearing opened a new and likely final chapter in the 1st Alliance saga, which started in May 2018 after banking regulators carrying out a routine examination of the lender’s internal records and business practices reported that some home loan coordinators had overstepped their authority as unlicensed agents.

The investigation led to a broader probe of the lender’s business model, which the department claims is suspiciously unique among U.S. loan originators. Relations between the agency and 1st Alliance soured as examiners sought to obtain thousands of staff emails and phone messages, which the firm’s lawyers believe could contain private or privileged information.

After several months of fruitless back-and-forth, the company lost its statutorily required surety bond from The Hartford, effectively ending its ability to provide loans in Connecticut.

The hearing on the status of 1st Alliance’s mortgage license was to continue today. As of this morning, the Banking Department had not scheduled a continuation, making it unclear exactly when the hearing officer in the case, Cynthia Antanaitis, will render her final recommendation to Commissioner Jorge Perez.

Though still technically in business, 1st Alliance has been decimated by its row with regulators. With its license suspended, the company ceased all loan-related activity over the summer and pared down its staff from 178 employees to just 17.

The lender once had plans to open a new, 350,000-square-foot headquarters in the Rockville section of Vernon and a call center in Putnam, but those projects were halted and then scrapped entirely as the Banking Department’s investigation got underway.

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