Yesterday, Attorney General Richard Blumenthal filed suit against several subprime lenders in Connecticut who had conspired to defraud consumers with predatory lending practices. You can read the press release here.

As subprime lending practices continue to grab headlines, one has to wonder how far this will go.

One obvious person of interest is none other than State Senator David Cappiello, the GOP's candidate for Congress in Chris Murphy's 5th Congressional District.

David Cappiello, a star GOP recruit who is trying to take on Freshman Dem. Rep. Chris Murphy, lists his full-time occupation as a Mortgage Loan Officer for Danbury-based "Charter Funding." Charter Funding has, so-far, not been sued by Blumenthal.

But after a close look, things get very murky very quick.

Charter Funding, it turns out, is a business name of a secretive Tuscon, Arizona-based subprime lendor, First Magnus Corp. First Magnus is a privately-held lendor that operates around the country under literally dozens of different names, often within the same state. It is a registered foreign-owned corporation, but I'm not sure who its shareholders are.

In any event, First Magnus mortgage shops are franchised out to people like Cappiello (who can apply for franchises and broker licenses online), who then market mortgages (again, mainly subprime) typically to people who have no business getting mortgages.

A number of franchisees have been prosecuted for fraud.

On August 21, First Magnus filed for Chapter 11 bankruptcy protection and posted the following on its website.

In light of the collapse of the secondary mortgage market, First Magnus will not fund any future mortgage loans, and is no longer accepting any mortgage loan applications or funding any mortgage loans previously originated and not yet funded. We explored all options before taking this action but were left with no viable alternative.

First Magnus values the relationships we have formed with all of our broker partners over the years and appreciate the trust you have shown in us. We are saddened that we will no longer have the opportunity to work with you.

For information about loans already submitted to First Magnus, please contact us at 520.618.9000 or call our toll-free hotline number: 1.866.901.7655.

My question: how many of these bad loans were written by Sen. Cappiello?

How many people have lost their homes because of shady ARMs he handed out?

More importantly... were any of the loans issued under predatory or fraudulent circumstances?

Is Blumenthal's office investigating Chater / First Magnus? Is Cappiello out of work?

It's not every day that a major mortgage lender collapses, and it's not every day that a major mortgage lender employing a major congressional candidate collapses.

No longer Charter Funding!

Cappiello's outfit is back with Flagstar Bank. (same people, same office location, etc.)

My guess is that they are independent contractors, and not employees per se, and that they can contract/represent whatever funding source they prefer.

So why did Cappiello's group leave Flagstar for Charter in the first place? Probably for more flexibility in writing deals.