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An executive convicted of orchestrating a nearly $3 billion fraud as chairman of one of America's largest private mortgage companies was sentenced Thursday to 30 years in prison by a judge who accused him of lacking remorse.
The case against Lee B. Farkas, former chairman of Florida-based Taylor Bean & Whitaker, is one of the largest prosecutions arising from the nation's financial crisis. The fraud spanned more than seven years, put thousands of employees out of work and contributed to the collapse of Colonial Bank, which authorities described as the sixth-largest bank failure in U.S. history.
"He deserves to be punished severely in light of the enormity of his crimes. The losses from this case are, in fact, off the charts," Patrick Stokes, a federal fraud prosecutor, said in urging a judge to send Farkas, 58, to prison for the rest of his life.
Farkas, who denied any wrongdoing when he testified at his trial, was convicted in April of all 14 counts, including securities fraud and conspiracy. On Thursday, he acknowledged taking risks and making errors in judgment to keep his company afloat and his employees earning paychecks. But he did not directly apologize for any fraud.
"When faced with the prospect of Taylor Bean & Whitaker sinking, I had to take risks," said Farkas, who has been in custody since the verdict. "I let Taylor Bean & Whitaker get out of control by letting it grow too fast."
U.S. District Judge Leonie Brinkema told Farkas she detected no remorse as she sentenced him to 30 years -- twice the 15-year sentence requested by his attorneys.
The fraud began in 2002 and took multiple forms until Taylor Bean collapsed two years ago and the scheme unraveled, prosecutors said. The company shut its doors after a federal raid in August 2009.
Taylor Bean overdrew its main account with Alabama-based Colonial Bank by a few million dollars, with mid-level executives at Colonial agreeing to transfer money into Taylor Bean's accounts at the end of each day to avoid generating overdraft notices. Taylor Bean eventually double- and tripled-pledged mortgages it held to a variety of investors, and sold more than $1 billion in worthless mortgages to Colonial. The bank listed the mortgages on its books and on its quarterly reports as legitimate assets, prosecutors alleged.
Farkas' appearance in court in a green prison jumpsuit was a far cry from a lavish lifestyle he once enjoyed of classic cars, a private jet, sea plane and expensive real estate -- including a Key West home. The government is seeking to forfeit $38.5 million from him.
Farkas, of Ocala, Fla., is the last of seven employees and executives from Taylor Bean and from Colonial to be sentenced. The other six cooperated with the government and agreed to testify against him in hopes of securing lighter sentences for themselves.
Colonial was cheated out of more than $500 million, and two other banks -- Deutsche Bank and BNP Paribas -- lost nearly $2 billion.
In addition, prosecutors say Farkas and his co-defendants also tried to fraudulently obtain more than $500 million in taxpayer-funded relief from the government's bank bailout program, the Troubled Asset Relief Program, also called TARP. Neither Taylor Bean nor Colonial ever received any TARP money, even though TARP at one point gave conditional approval to a payment of roughly $550 million, investigators say.
Farkas' lawyer. Bruce Rogow, argued Thursday that prosecutors had magnified Farkas' role in the fraud and said that while his client may have made naive, foolish and even delusional decisions, he was not a calculating criminal deserving of a life sentence. He said each of Farkas' co-defendants deserved blame for allowing the fraud to continue for years.
"He is not the ogre that the government makes him out" to be, Rogow said.
Independence Day:
"On July 2, 1776 the Second Continental Congress voted to approve a resolution of independence. After approving the vote for independence, attention was directed at writing the Declaration of Independence. The Declaration of Independence was to be a statement explaining this decision to seek independence from Great Britain. Thomas Jefferson was the principal author". As we should all know, The Declaration of Independence was approved and signed on July 4. Enjoy the holiday.
"In a remarkable coincidence, both John Adams and Thomas Jefferson, the only signers of the Declaration of Independence later to serve as Presidents of the United States, died on the same day: July 4, 1826, which was the 50th anniversary of the Declaration."

CFPB:
The CFPB has just released its second proposals in a series of five. The CFPB wants industries input. Go to http://www.consumerfinance.gov/knowbeforeyouowe/ and VOTE. I would recommend you print out the 2 proposals prior to voting. They are in the process of merging the GFE and TIL. I have met with the CFPB Mortgage Markets team on a number of occasions and they are very earnest in their request for industry responses. They received over 13,000 to the first proposal.

If you want to continue to participate you may register on the CFPB home page www.cfpb.gov to receive their emails..

Political Advocacy:
As Steve Emory wrote last week, our industry needs to speak up and get the truth out. In the Spring of 2010, I got very frustrated and called the FRB's Mr. Mondor, Esq.. We had a very pleasant conversation about the FRB Rule and its integration. In his somewhat lengthy legalese, he gave me his version of what would transpire.

The next day I drove from NJ to DC and started banging on doors, so to speak. Our politicians in DC only know what they are told. Most of their information comes from media sources or lobbyists. Many ranking officials did not know about the FRB Rule on Originator Compensation as late as February 2011. It was simply amazing to me how disconnected our elected officials, both parties, are from the reality that the 'boots on the street' have to experience.

As we approach our Day of Independence, it's time for you to exercise your independence. Go visit your elected official. You don't have to drive to DC, go visit them in their local district Talk to them about your issues and concerns. Your elected officials are in district most of August. Call their DC office and ask for the Scheduler and make an appointment today.

Fannie Mae:
The following are two excerpts come from last week's Fannie Mae's Economics and Mortgage Market Analysis http://www.fanniemae.com/media/pdf/economics/2011/Summary_062011.pdf;jsessionid=REGC0CEPB5QEDJ2FQSISFGI :
"This month marks the two-year anniversary of the current economic expansion, which so far has been quite disappointing. The prospects for accelerating growth have grown dimmer recently with downward revisions of first-quarter activity and most economic data for the current quarter being downbeat. Markets have reacted quite negatively, but the question is whether the repeated onslaught of global shocks has generated an overreaction. We believe the doomsayers are wrong; nevertheless, growth is slowing appreciably and recession risks have risen."
"For 2011, we now expect economic growth to come in at 2.5 percent, a downgrade from 2.9 percent in the previous forecast and more than a full percentage point lower than our forecast at the start of this year"
Now I'm only an arm chair economist and mortgage market analyst, but after 25yr in the mortgage industry as a loan officer, broker and banker and the self employed owner of a small business for most of that period, I, as most of you, can recognize fluff. And this is fluff. And not the marshmallow fluff we loved as kids.

Let's look at this again. We are in a "two year economic expansion", which is "disappointing". I must have missed the economic expansion. I'm perplexed. Are we expanding or is it disappointing? After all the bad news of the past few years I would have thought an expansion would be easily visible. Fannie openly notes that they are having downward revisions. Just the most recent is a revision from 2.9% to 2.5%. This new target is after a 1% reduction. So, is the report really saying that Fannie Mae is now targeting a 28% lower economic growth rate?

Congress:
This week Rep. Scott Garrett (R-N.J.) and Rep. Carolyn Maloney (D-N.Y.) had their United States Covered Bond Act pass out of the Committee.

HVCC
I recently had a conversation with Ian Coate's (NAIHP Vice President) and appraiser advocate. Ian noted the following:
The business and profession of appraising is being phased out by external forces. The systemic appraisal protections, that high quality appraisals provide to the mortgage process, has been severely damaged by recent changes to the appraisal guidelines and laws. The Home Valuation Code of Conduct (HVCC), which was implemented in May 2009 and then codified into federal law in the Dodd-Frank Act, has been the single biggest destructive force to the appraisal profession in recent years.

With the average age of an appraiser at 57 years old, and the sharp decrease in appraiser trainees (caused by the downward pressure on appraisal fees), this country is facing the next mortgage related meltdown in 6-10 years due to a shortage of highly qualified appraisers. To become licensed as a certified appraiser, one must possess an associate's degree or higher (soon to be a 4 year college degree), take 250 hours of approved appraiser education, and perform 2500 hours of trainee experience in no less than 2 years time. With this large investment of time and resources paired with the relatively low income expectations in the appraisal field, there is little hope of attracting highly qualified candidates to enter the profession. And despite financial institutions' desire to obtain property valuations more quickly and cheaply, the alternative valuation methods such as AVMs and BPOs are simply too unreliable and are dangerously inadequate when compared to traditional appraisals.
The HVCC issue must be addressed immediately in order to correct a myriad of negative consequences which ail our mortgage system. Brian Benjamin