A top loan originator and his aide are facing up to 30 years in prison after the Department of Justice indicted the pair for a "large-scale" mortgage fraud scheme Wednesday.
Christopher J. Gallo, a former top loan officer at NJ Lenders Corp., and his assistant, Mehmet A. Elmas, are accused of orchestrating a ploy in which the two mortgage professionals falsified loan origination documents, while they both worked at the New Jersey-based company.
Specifically, from 2018 through last October, the originators did not disclose to their employer and other lenders when a borrower was buying a second property, thereby securing lower mortgage rates for consumers. In reality, some of these properties were being bought to be used as rental or investment properties, a complaint by the DOJ reads.
During this time, Gallo originated more than $1.4 billion in loans and was on National Mortgage News' top
Stakeholders in the mortgage industry responded with confusion to the allegations, questioning why it took so long to catch the purported scheme.
"A fortune was spent on third-party vendors after 2008 to prevent quality control issues," said one industry veteran who requested not to be identified. "What happened?"
It is unclear how many of the loans originated during this time period were actually falsified, but some were likely Fannie Mae and Freddie Mac loans.
The DOJ has charged the pair with one count each of committing bank fraud, which carries a maximum penalty of 30 years in prison and a $1 million fine. The misrepresentation of facts in loan applications helped "Gallo and Elmas secure and profit from mortgage loans that were approved," the U.S. Attorney's Office, District of New Jersey said.
Apart from withholding information, the pair also purportedly conjured up property records, including building safety and financial information of prospective borrowers to facilitate mortgage loan approvals, the DOJ said.
According to the complaint, in 2022 Gallo fabricated documents to approve a borrower for a Fannie Mae loan to purchase a condo property by "falsely stating that the [homeowners association] had the necessary capital reserve for loan approval," when in reality that wasn't true.
NJ Lenders wrote the company is "fully cooperating with law enforcement and the ongoing investigation of two former employees."
"The actions of these former employees appear to have been coordinated to benefit them financially while taking advantage of the reputation and trust of the firm," said Mark Tabakin, attorney for NJ Lenders. "NJ Lenders' work will continue uninterrupted as we provide the highest level of service to our clients."
CrossCountry Mortgage, which employed Gallo after he left NJ Lenders Corp. late last year, said the loan officer is no longer with the company.
FBI agent James E. Dennehy and agents of the Federal Housing Finance Agency, Office of Inspector General led the investigation. FHFA's OIG declined to comment on how many of the fraudulent loans originated were Fannie or Freddie loans.
Gallo and Elmas appeared before U.S. Magistrate Judge André M. Espinosa in Newark federal court Wednesday and were each released on a $200,000 unsecured bond.
Gallo had not returned a request for comment at the time of publication. Attempts to reach Elmas were not successful.
