In the wake of a criminal indictment against the owner of Taylor Bean & Whitaker, the Inspector General for the Department of Housing Urban Development is projecting at least $3 billion in losses for the government, perhaps more.

In a brief interview with ASR's sister publication National Mortgage News HUD IG Michael Zerega said the nonbank lender "cooked their books," adding that "they called loans performing when they weren't."

The IG's office has been investigating the Ocala, Fla.-based TBW since 2008. The nonbank was a top ranked FHA lender, and GNMA issuer. It pledged MBS and other assets as collateral for warehouse lines of credit made by commercial banks.

On Wednesday, just after the Securities and Exchange Commission announced that it had filed a civil suit against TBW CEO and owner Lee Bentley Farkas, the Justice Department filed a 16-count indictment against him. The criminal allegations echo charges in the civil complaint, namely that TBW, under Farkas, created $400 million of "fake mortgages," and then sold them to its chief warehouse lender, Colonial Bank. (Last spring TBW tried to buy a controlling stake in Colonial using borrowed money and TARP funds. The deal eventually fell apart with both companies failing.)

The indictment says Farkas "and others" carried out a "massive fraud," saying at least $1.9 billion in losses have already occurred. An attorney for Farkas said his client will plead not guilty.

 

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