1st Alliance suspends originations pending state dispute's resolution

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1st Alliance has ceased originating mortgages following the loss of bonding in Connecticut along with financial concerns it links to an unresolved dispute with its state regulator.

However management held out the possibility of resuming activities at some point in the future.

The company was able to wind down its originations slowly to avoid disrupting customers, said 1st Alliance CEO John DiIorio.

"We have set up the company for a soft landing and the hope remains that the regulatory issues would get resolved, at which point the principals would recapitalize the company," he said.

There were requests for the surrender or cancellation of 1st Alliance's licenses in Alaska, Connecticut, Montana, New Hampshire and New Jersey, as of the afternoon of Aug. 15, according to the National Multistate Licensing System. But the company's licensing was still current in more than 30 other states.

The Connecticut Department of Banking said in a statement Thursday it automatically suspended 1st Alliance's licensing as required by law due to its surety bond lapsing.

The company "could continue to operate if they provide a bond," the department said.

The disruption in the company's bonding in Connecticut also affected its licensing in some other jurisdictions that relied on its home state's regulatory approval, according to DiIorio.

Connecticut calls the bonding issue "unrelated" to its ongoing dispute with 1st Alliance over its interpretation of the Secure and Fair Enforcement of Mortgage Licensing Act. The SAFE Act requires states to establish licensing for individual mortgage loan officers at nonbank lenders.

An anonymous whistleblower who alleged that there was "unlicensed mortgage origination activity" on the part of certain employees at 1st Alliance led to the state's allegations against the company last year, according to the Connecticut DOB.

The state said that it initially asked 1st Alliance to comply with state law without admitting wrongdoing, pay a "modest civil penalty" and "refrain from denying the allegations or making public statements creating any misimpression that the allegations were without factual basis."

But 1st Alliance characterized that the overall price tag for compliance as steep, rather than modest, and said that it led to downsizing and staff cuts.

It also alleges that the DOB was not satisfied with compliance related to Connecticut loans, but wanted its interpretation applied across all jurisdictions in a way that would have been too financially burdensome for the company.

"We don't believe we've done anything wrong, we made the change in our business practice they wanted us to make. But that wasn't enough for them," DiIorio said in a statement issued Thursday.

The Connecticut DOB said in its statement that it has asked 1st Alliance to "follow Connecticut law and refrain from using unlicensed employees for mortgage loan origination activity," but added that it "cannot impose the requirements of Connecticut banking laws in other jurisdictions."

1st Alliance said it has filed state Freedom of Information Act requests for documents from the DOB "in order to learn if it was trying to improperly influence other states" in the dispute over mortgage loan originator licensing.

"In accordance with state statute and under information sharing agreements with other states, the Department of Banking routinely reaches out and shares information with other state and federal regulators as well as law enforcement agencies," the DOB said.

The Connecticut regulator acknowledged that it has "responded to several overly broad and overlapping Freedom of Information Act requests made by two of 1st Alliance's law firms on separate dates."

"We continue to work diligently to review tens of thousands of pages of potentially responsive documents in full compliance with the Connecticut Freedom of Information Act," the DOB said.

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State regulators Licenses and charters Enforcement Originations Nonbank 1st Alliance Lending Connecticut