SPRINGFIELD, Illinois — Diamond Residential Mortgage Corp. has agreed to pay $1.27 million to the state as part of a “consent order” stemming from alleged fraudulent loan-origination activity by Chris R. Schaller and other employees of Diamond’s now-closed Springfield branch.
The consent order outlining the payment agreement was announced Wednesday by the Illinois Department of Financial and Professional Regulation and followed a decision by the state agency last week to revoke the mortgage loan-origination license of Schaller, a Springfield-area resident.
Schaller, 44, former manager of Diamond Residential’s Springfield branch, is being investigated for potential criminal activity by the FBI, The State Journal-Register has learned. The Springfield office of the FBI couldn’t be reached for comment.
A news release from the department said that an investigation by state regulators “found evidence that employees of [Diamond Residential Mortgage Corp.’s] Springfield branch office had engaged in fraudulent loan-origination activities. [The Illinois Department of Financial and Professional Regulation] is disciplining [Diamond Residential Mortgage Corp.] for its negligent supervision of the Springfield branch office.”
The order places Diamond on probation for three years.
The state agency will transfer the $1.27 million, minus the cost of the investigation, into the Illinois attorney general’s consumer trust account so that the recovered funds may be returned to victims of the fraudulent activity.
“Consumers were harmed by the Diamond Residential Mortgage Corp.’s Springfield branch office’s actions,” Illinois Department of Financial and Professional Regulation Secretary Bryan Schneider said in the news release. “Funds must be given back by the licensee in order to work towards compliance.”
People who believe they were harmed by actions taken by the branch office — which was closed earlier this year — can go to the attorney general’s website at www.illinoisattorneygeneral.gov or call 800.243.0618 and file a complaint, the release said.
A statement issued by Diamond Residential after the order was made public said: “The events underlying the settlement were isolated to a single branch under the direction of a single former employee, Chris Schaller, who was promptly suspended and immediately terminated after a thorough internal investigation. DRMC no longer employs any individual identified as being connected to Schaller’s misconduct.”
The statement said Diamond Residential cooperated with regulators throughout their investigation and structured the $1.2 million remediation fund for “Illinois consumers affected by Schaller’s conduct — even those who were not DRMC customers.”
The company added, “We have taken steps to improve our compliance management systems and enhance policies and procedures across the company to ensure similar incidents do not happen going forward.”
A spokesman for Financial and Professional Regulation wasn’t available to elaborate on the consent order.
A Diamond Residential spokeswoman said the company isn’t aware of anyone else associated with the company who has been investigated by the state.
Diamond Residential operated a branch at 2921 Greenbriar Drive in Springfield until the office was shut down in March. The company has branches in 10 states and is licensed to operate in 21 states.
Since Diamond Residential was formed in 2009, it has closed more than $8 billion in loans without incident, the company statement said.
It’s unclear in documents filed by Financial and Professional Regulation how much money Schaller may have received through an alleged scheme or what sort of ramifications were encountered by consumers for whom Schaller arranged home loans.
State regulators said last week that Schaller was involved in fraudulent activities to obtain 10 loans and hatched a financial scheme that harmed six consumers. He was ordered to pay a $128,000 fine.
He declined comment to the newspaper last week.
The state said Schaller allegedly convinced six borrowers that they were obtaining mortgages from Diamond Residential when they actually were signing a contract for deed that — unbeknownst to the borrowers — transferred ownership interest in their properties to Schaller.
As part of the scheme, Schaller allegedly created an account at a bank to hold ownership interest and control of the consumers’ property, with Schaller the sole beneficiary of the account.
For the 10 loans that Schaller helped to obtain, at least two were based on fraudulent information that Schaller provided without the knowledge of applicants, according to state documents.
In one of the loans, the applicant cooperated with Schaller in using a fraudulent affidavit as part of the application, documents indicated.
The company spokeswoman said: “The settlement primarily concerns Schaller’s outside business activities, which may have harmed individuals in the Springfield area.”
The spokeswoman said most of the fraudulent conduct involved private deals and private transactions completed by Schaller outside of Diamond Residential’s approval process and didn’t involve DRMC customers.
“Diamond Residential did not approve of Schaller’s outside activities but has nonetheless agreed to establish a compensatory remediation fund to address any economic harm Schaller’s outside activities may have caused,” the spokeswoman said.