WASHINGTON (AFP) – The treasurer of a once-leading US private home lender pleaded guilty Thursday in a $1.9 billion scheme to sell worthless loans that sparked the country's largest bank failure in 2009, the justice department said.
The scheme, which continued straight through the 2008-2009 collapse of the US housing market, fed billions in home loans that either did not exist or that had already been sold to banks and investors, to raise cash for its business.
The duped customers included Colonial Bank, which collapsed spectacularly in August 2009; government-backed home loan guarantor Freddie Mac; and Ocala Funding, a Florida entity backed by Deutsche Bank and BNP Paribas.
They also tried to push worthless assets on the government's Troubled Asset Relief Program, ironically designed to salvage the scandal-ridden home-loan industry, the department said.
Desiree Brown, who was the treasurer of Florida-based Taylor, Bean & Whitaker Mortgage Corp (TBW), which handled more than $35 billion in home loans in fiscal 2007-2008, admitted the company falsified documents to sell bogus loans to the various banks.
The biggest victim was the 346-branch Colonial Bank, which became insolvent and shut down in August 2009 mainly due to problems with TBW-related assets.
"As part of the fraud scheme, she and her co-conspirators also caused TBW to sell fictitious trades, which had no pools of loans collateralizing them, to Colonial Bank," the justice department said in a statement.
"Brown and her co-conspirators caused false information about the trades to be entered on Colonial Bank?s books and records, giving the appearance that the bank owned interests in legitimate trades, when in fact the trades had no value and could not be sold."
"The fraud scheme also included an effort by the conspirators in the fall of 2008 to obtain $570 million in taxpayer funding through the Capital Purchase Program, a sub-program of the US Treasury Department?s TARP program," the statement said.
Brown's confession was likely to have an impact on the case of former TBW chairman Lee Farkas, who is on trial in a Virginia federal court on similar fraud charges.
Farkas built TBW even as subprime mortgage lenders began to fail in 2006 and other banks began to pull back from the overheated market.
As lenders dropped out, TBS filled the gap to become one of the country's largest private lender by the time it was shut down, also in August 2009.
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