Frank A. Rubino, ESQ.

FEDERAL AND INTERNATIONAL CRIMINAL DEFENSE

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Fannie Mae and the Taylor Bean mortgage fraud case

The legal actions surrounding Taylor, Bean & Whitaker Mortgage Corp. may be over as a judge sentenced former chairman and principal owner to 30 years in prison. While the criminal prosecution may be over for Taylor Bean officials, the fallout continues surrounding the $3 billion dollar mortgage fraud scheme. It appears that executives at the government-sponsored entity Fannie Mae were aware of fraudulent activity as early as 2000. The officials at that company made no report of the criminal activity simply withdrew from doing further business with Taylor Bean. Much of that business was then transitioned to fellow government-sponsored entity Freddie Mac. Freddie Mac has filed a claim as a creditor in Taylor Bean's bankruptcy case for $1.8 billion dollars.

At least one former government investigator has suggested that anyone who knew of the mortgage scheme should be held accountable in the judicial system for failing to report. A spokeswoman for Fannie Mae acknowledged that the current policy would be to inform law enforcement of any inappropriate activity discovered by the company. At the time, however, Fannie Mae entered into a confidential agreement that allowed Taylor Bean to pass off the business Fannie Mae had been doing to Freddie Mac.

The Justice Department decided not to indict Fannie Mae in 2004 for their failure to report some of the fake loans originated by Taylor Bean. The head of the FBI's Charlotte, North Carolina, office testified in Congress that a mortgage fraud epidemic was coming based in part on what he learned about the relationship between Taylor Bean and Fannie Mae. The actions that led to the conviction of Lee Farkas and six other Taylor Bean officials came after Fannie Mae terminated the relationship between the two companies.

As the government ramps up its efforts to investigate and prosecute mortgage fraud cases, many businesses and executives may find themselves facing charges. Conduct such as that engaged in by Fannie Mae officials may lead to federal criminal actions. In this case, Taylor Bean got seven years of leeway to continue conducting business due to the confidential arrangement they entered into with Fannie Mae.

Source: Bloomberg, "Fannie Mae Silence on Taylor Bean Opened Way to $3 Billion Fraud," Tom Schoenberg, 30 June 2011

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Coral Gables Office

Frank A. Rubino, Esq.
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