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Taylor Bean Mortgage - Taylor Bean Mortgage is One of the Biggest Fraud Cases

million mortgages farkas colonial

Although it received less publicity, the sudden closure and subsequent criminal investigation of Taylor Bean & Whitaker Mortgage Co. in early August 2009 was far more spectacular and more messy than the widely reported meltdown earlier of Countrywide Financial Corp., which eventually was acquired by Bank of America.

The Taylor Bean case involves multi-billion dollar losses to the government and criminal indictments against former company executives.

In a July quarterly report to Congress on the federal Troubled Assets Relief Program (TARP), the Taylor Bean case was described as “one of the most significant criminal cases to arise from the financial crisis thus far.”

Federal agents raided the Ocala, Fla., offices of Taylor Bean mortgage on Aug. 3 as part of an investigation into a scheme to steal more than $500 million from the government’s financial bailout fund.

The authorization for Taylor Bean, the nation’s third largest FHA lender at the time, to issue government-backed mortgages was suspended two days later. More than 2,000 employees, including 1,000 in Ocala, lost their jobs immediately without severance money and were told the company would try to make good on back pay.

When Bank of America took over servicing of some Taylor Bean mortgages a few weeks later, some customers who made payments in early August received late notices because their payments had not be credited. Many found their escrowed property taxes or insurance bills were not paid.

Taylor Bean mortgage was closely tied to Colonial BancGroup of Montgomery, Ala., which filed for Chapter 11 bankruptcy protection a few weeks after the mortgage company shutdown. Colonial also was the target of a federal investigation into its mortgage processing unit in Orlando, Fla. Taylor Bean also filed for bankruptcy protection.

The Colonial bank failure was the sixth largest in U.S. history. At the time of the filing, Colonial listed debts of $380 million and assets of $45 million. The FDIC earlier sold most of the bank’s $22 million in assets and $25 million in deposits at 346 branches in five states to BB&T Corp.

Before its demise, Taylor Bean mortgage was the nation’s 12th largest mortgage lender with loans worth $17 billion in 2009, or 1.7 percent of all mortgages. At its peak in 2007, the company held mortgages worth $35 billion. The company’s rapid growth was fueled its heavy involvement in government-backed mortgages during the housing boom and continued when other lenders disappeared from the market.

Most Taylor Bean mortgages were originated by banks and mortgage brokers. The mortgages were acquired and serviced by the company, then bundled and sold as mortgage securities backed by Ginnie Mae (Government National Mortgage Association) in the secondary mortgage market.

The federal investigation was launched after the U.S. Department of Housing and Urban Development noticed that Taylor Bean’s mortgage loans were failing at a higher rate than other lenders. Shortly after the closure, Taylor Bean top executive Lee Bentley Farkas sent an email to employees with the subject line: “The saddest day of my life.”

In late June 2010, Farkas, who bought the company in 1990, pleaded not guilty in Alexandria, Va., to charges that included conspiracy, bank fraud and wire fraud in connection with the alleged scheme to steal government bailout funds.

Farkas and other Taylor Bean and Colonial executives were charged in the indictment with diverting cash to cover Taylor Bean’s operating losses and selling Colonial more than $400 million in fake mortgage loan assets. A trial date was set for this fall and Justice Department attorneys said they may present as many as 1 million documents in the case.

With his assets frozen, Farkas was unable to hire an attorney was relying on a court-appointed lawyer to mount his defense. Farkas has put some of his other Ocala businesses up for sale, including a fitness center.

The U.S. Securities and Exchange Commission has filed a separate civil complaint against Farkas. HUD estimated its losses in the case could reach more than $3 billion and the FDIC losses were estimated at $2.84 billion.

REFERENCES
“Taylor Bean customers’ frustrations mount six weeks after downfall” (St. Petersburg Times), http://www.tampabay.com/news/taylor-bean-customers-frustrations-mount-six-weeks-after-downfall/1037437

“Farkas pleads not guilty; trial date set” (Ocala.com), http://www.ocala.com/article/20100703/ class="caps">ARTICLES/7031004?p=1&tc=pg

“TARP report calls Farkas case significant” (Ocala.com), http://www.ocala.com/article/20100723/ class="caps">ARTICLES/100729896

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