Home >> Daily Dose >> Bank of America Settles Two Financial Crisis Lawsuits
Print This Post Print This Post

Bank of America Settles Two Financial Crisis Lawsuits

BankofAmericaBank of America Corp. has settled a pair of financial crisis-era lawsuits filed by Deutsche Bank  and BNP Paribas over who should be responsible for losses tied to the multibillion-dollar fraud at mortgage lender Taylor Bean & Whitaker Mortgage Corp, according to the Wall Street Journal.

The business paper reports, Deutsche Bank‘s and BNP Paribas‘s mortgage units were investors in notes issued by Taylor Bean’s Ocala Funding unit, a mortgage conduit. The two banks sued Bank of America, which acted as middleman between the investors and Ocala, for $1.75 billion in 2009 over their losses on the notes.

“Both matters have been resolved,” Bank of America spokesman Bill Halldin told The Wall Street Journal on Thursday. Representatives of Deutsche Bank and BNP Paribas declined to comment.

Terms of the settlements weren’t announced, but in a regulatory filing Bank of America said it settled with the French bank for an “amount not material to the corporation’s results of operations.”

For the three banks, the legal settlements close the books on what was one of the messier chapters of the financial crisis. At the center of the legal morass was the Ocala Funding LLC conduit, a mortgage-financing vehicle that Taylor Bean created in 2005 to purchase its home loans, which were then bundled into securities and sold to investors such as Freddie Mac

The Ocala conduit was a key element in a seven-year, multibillion-dollar fraud orchestrated by Taylor Bean founder Lee Farkas, which also brought down Taylor Bean’s main lender, Alabama-based Colonial Bank.

When Taylor Bean’s mortgage assembly line collapsed in the summer of 2009, those involved the banks, the investors, and the FDIC pointed fingers at one another, each claiming to have been injured by conduct of others.

Bank of America said that the FDIC, which took over the remnants of Colonial as its receiver, was on the hook for the losses investors suffered when Taylor Bean and Colonial collapsed. It sued the FDIC in the autumn of 2010. The FDIC, which argued that the bank didn’t have the authority to sue it over losses incurred by the Taylor Bean subsidiary, countersued.

As part of the Justice Department’s milestone $17 billion mortgage settlement with Bank of America, the bank agreed to pay  $1.031 billion to the FDIC, as the receiver for 26 failed banks, including Colonial.

The mastermind behind the fraud at Taylor Bean was Farkas, the 62-year-old mortgage lender who is now serving a 30-year prison sentence in North Carolina for orchestrating the seven-year fraud that transformed a pile of bad loans into what appeared to be billions of dollars of assets.

Farkas’s fraudulent scheme involved Colonial Bank “purchasing” mortgage loans from Taylor Bean that had already been sold to other investors. In this way, Taylor Bean masked its financial problems and maintained its licenses as mortgage lender, seller and, importantly, issuer of mortgage-backed securities. Colonial provided the lender with $3 billion in mortgage financing, much of which went through Ocala.

Taylor Bean collapsed after federal regulators uncovered evidence of fraud and suspended its authority to make loans insured by the government agencies.

Farkas was found guilty in 2011 of misappropriating about $3 billion and trying to fraudulently obtain more than $550 million from the government’s Troubled Asset Relief Program in a failed effort to prop up Colonial. A handful of other executives from Colonial and Taylor Bean have also been sentenced to prison for their roles in the fraud.

Colonial went under when Farkas’s fraud was exposed. The collapse of Colonial, which had $25 billion in assets and $20 billion in deposits, was the biggest bank failure of 2009. The FDIC estimates Colonial’s collapse will cost its insurance fund $5 billion, making it one of the most expensive bank failures in U.S. history.

(Reporting by Patrick Fitzgerald)

About Author: Samantha Guzman

Samantha Guzman is an award-winning visual journalist and graduate of the University of North Texas Mayborn School of Journalism. She specializes in visual storytelling and has skills in video, audio and photography, in addition to news writing. She has traveled to Mexico and Bosnia as an assistant for multiple multimedia projects and taught news writing, photojournalism, and narrative storytelling in the past.
x

Check Also

Survey: Homeownership Remains Elusive for Baby Boomer Renters

A recent look into housing affordability by NeighborWorks America has found that three in five long-term baby boomer renters feel homeownership remains unattainable.