By Patrick Fitzgerald
Bank of America Corp. paid $315 million to settle a pair of
financial crisis-era lawsuits filed by Deutsche Bank AG and BNP
Paribas SA over who should be responsible for losses tied to the
multibillion-dollar fraud at disgraced mortgage lender Taylor Bean
& Whitaker Mortgage Corp.
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.
"Resolving these claims is a substantial achievement in our
efforts to recover losses suffered on Ocala," said Deutsche Bank
spokeswoman Renee Calabro. Bank of America and BNP Paribas declined
to comment.
Bank of America said in a regulatory filing that the $315
million settlement was fully accrued as of Dec. 31, 2014. Earlier
this year, the bank had said in a filing that it settled with BNP
Paribas 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. Ocala funded its
business by issuing short-term notes that it sold to investors.
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
Federal Deposit Insurance Corp.--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 Mr. 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.
Mr. 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.
Mr. 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 also have been sentenced to prison for
their roles in the fraud.
Colonial went under when Mr. 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.
Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com
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