Embattled mortgage banker appeals to lawmakers
Careful readers of this column will recall that once a year, give or take, I’ve reported on the case pitting the state against 1st Alliance Lending LLC, a mortgage banking company that had 178 employees in East Hartford and wrote $500 million a year in home loans at its peak.
The company, now long out of business, and its founder and CEO, John DiIorio, have been locked in a multi-front legal battle with the Department of Banking that shows no sign of a letup after nearly five years. On Tuesday, DiIorio challenged lawmakers to reject Banking Commissioner Jorge L. Perez in a hearing on his reappointment by Gov. Ned Lamont.
The General Assembly’s nominations committee did not turn back Perez, eight years in the job and a former president of the New Haven Board of Alders. Few state officials have taken heed of DiIorio’s cries of foul over the years as he accuses Perez and the banking department of vengeful overreach in using a regulatory hammer far outsized for allegations that DiIorio says are 100 percent invalid.
“I would like to see Connecticut appoint a competent, fair, eventempered commissioner for every agency and I just happen to be familiar with one who doesn’t meet any of those criteria,” DiIorio said to me this week.
In his written testimony to the nominations committee, DiIorio attacked Perez specifically, and the department, for “enforcing laws in contradiction of legislative language and intent.”
“Mr. Perez is an intemperate bully, and should not be our Commissioner of Banking. His misconduct has caused enormous damage to Connecticut, and simply can’t be tolerated. Connecticut can do better than Jorge Perez,” DiIorio wrote.
Perez and the department, through spokesman Matt Smith, who’s also a former New Haven alderman, declined to comment on DiIorio’s charges in the nomination. Smith and other department officials and lawyers for the state have previously said the company’s whole business model was out of compliance with state law and that the department acted properly at every turn.
One case, many courts
At the core of the dispute, the banking department charged 1st Alliance in mid-2018, after a surprise investigation in May of that year, with allowing unlicensed home loan coordinators — callcenter staff — to give quotes to customers and make formal offers. That would be a violation of federal and state laws written during the 200809 mortgage crisis, which require only licensed “mortgage loan originators” to make offers and sell home loans.
The company denied the charges and said the department misinterpreted its own laws and did a shoddy investigation. That set off a legal battle in several venues including the state Supreme Court, which ruled that the state properly revoked 1st Alliance’s license to operate even before the administrative hearings on the charges — effectively putting the company out of business in Connecticut and the 45 other states where it operated.
The case continues as the company has appealed the banking department’s administrative ruling (with a $750,000 fine and revocation of an already revoked license) in Superior Court and the federal Consumer Financial Protection Board investigates 1st Alliance.
In short, the twists and turns of this case read like a parody of a bad novel without the sex. In September of 2018, the department offered a consent order with a $250,000 fine. DiIorio declined, calling it a “gag order” that would have prevented him from defending himself in other states and saying, then as now, that his business model conformed with the law.
The banking department contended at the time that the consent order was a standard remedy that required no admission of guilt by the company.
The company high-priced, big lawyers including hired name Ross
Garber, who has represented governors in four states and remains on the case. DiIorio (the third letter is a capital i, not a lower-case L) went public with a press conference even before the department filed its first notice to revoke the 1st Alliance license.
No harmed customers
We won’t go through all the details here and I obviously have scant ability to determine whether 1st Alliance violated the law. What I can say clearly is that this case represents a failure by the state government — the banking department, two governors and the legislature — to put an end to a dispute that never was worth the punishment meted out even if the charges were true.
After nearly five years of this craziness, the state has yet to produce one single mortgage customer claiming to have been harmed by the allegations at 1st Alliance. Think about that; finding aggrieved borrowers in
the housing crisis of the Great Recession that led to this law was about as hard as scoring a beer at a St. Patrick’s Day party. Here we have not one.
Bank after bank in this state and others has committed acts of racist lending and usurpery of customers, only to see slaps on the wrist, typically by lax federal regulators. 1st Alliance, DiIorio said, made 38 percent of its loans to minority borrowers and its customers averaged about 15 percent below the typical income of a home buyer — so the firm apparently walked the equity talk.
Smith has said previously that the whole point of banking regulation is to root out violations before customers are harmed. He has defended every legal maneuver, saying, for example, that 1st Alliance failed to understand the law when it surrendered its license to operate in Connecticut and did not renew its surety bond — leaving the department with no choice but to revoke the company’s license. DiIorio, in his written testimony, points to two other cases in which courts apparently rebuked Perez and the department for enforcement. “Jorge Perez’s misconduct is consistent, exposing Connecticut to excessive legal fees and other legal jeopardy,” he wrote. But of course, those cases don’t necessarily represent a problem or a pattern.
DiIorio contends that no other state among the many that use the identical law, several of which did full investigations of 1st Alliance, has lodged charges against the company. And in fact, a multi-state regulatory committee determined the company did not violate the rules.
The department has said the fact that the Consumer Financial Protection Bureau is investigating proves it’s on the right track — even as DiIiorio accuses the department of using connections at the federal agency, which he names, to launch a faulty inquiry.
“The CFPB is beginning to understand the depth of misinformation they were fed by Mr. Perez and his consumer credit division after two years of investigation,” DiIorio said.
DiIorio has not fared well so far and Tuesday did not bring a different result as Perez sailed through with no objections. In all, six people connected with 1st Alliance filed testimony against Perez. “I don’t think the legislature would tank a commissioner based on one complaint,” said Senate Majority Leader Bob Duff, co-chairman of the nominations committee.
It’s hard not to think that even if the violations happened as alleged in 2018, it should never have come to this.