On Crooks and Crooks?

This guy’s a crook and he’s going away for a very long time. His sentence will be announced tomorrow. He’s looking at 50 years. This is Lee Farkas. He was the boss at Taylor Bean & Whitaker (“TBW”). Farkas and some of his pals at TBW have been convicted of $3b in mortgage fraud.

This is a very nutty story. For me, the Farkas conviction is a sideshow. What I want to know/understand is how some of the biggest players in D.C. were involved in this mess.

Bloomberg has a detailed recap of the story. (Link). My take and some of their cuts:

This all started way back in 2002. TBW was doing big mortgage business with Fannie Mae. And guess what? Fannie determined that TBW was selling phony loans. Fannie accused TBW of fraud. They looked at specific mortgages and concluded:

A public records check revealed that the named borrowers didn’t hold title to the real estate and that the mortgages sold to Fannie Mae had never been recorded, according to the Fannie Mae document.

In 2008 a Fannie Exec said this about the events of 2002:

“Our conclusion was that fraud, if I can use that word, had been perpetrated on Fannie Mae, and we considered that to be a very, very serious matter.”

As a result of the fraud Fannie stopped doing business with TBW. But they had a side deal to keep that quiet. Why? Because the disclosure would hurt the mortgage pool. Unbelievable!! From a court document:

Fannie Mae wanted to preserve the value of the servicing portfolio, which would plummet if it reported that Taylor Bean was selling bogus loans.

So after Fannie sneaks out of this dirty deal, who steps into the trap? None other than those idiots at Freddie Mac: (from the Bloomberg story)

At Freddie Mac, the decision to boost purchases from Taylor Bean was made by David H. Stevens, then a senior vice president of mortgage sourcing.

This insanity led to the $3b ultimate fraud. How could this have happened? Fannie knew that TBW were crooks. They must have been laughing in the halls when their archenemies at Freddie picked up where they left off. Who was in charge of Fannie at the time? Who was it that failed to notify ANYBODY of mortgage fraud? None other than Franklin Raines.

So what does are boy Frank have to say about the events that took place in 2002? Unbelievable!

“I have no memory” of the Taylor Bean matter.”

This just might be one of those cases where water boarding might be justified. He has no memory of such a significant event? Not possible.

Fannie and Freddie were regulated by OFHEO in 2002. Armando Falcone was running the place at the time. He was a Clinton holdover. I’m not sure what role he played in this. I find it impossible to believe that the “Top Cop” of the GSEs was not aware of the history of TBW. I think he tried to force the issue and got fired for his efforts.

On 2/25/05 this notice of a new requirement for the GSEs to disclose any evidence of fraud was published in the Federal Register. Falcone was behind this disclosure effort. He had to have something in mind.

Six weeks later Falcone was forced to resign. He wrote a letter to Bush.

 
I wonder if this sentence was a hint of what he was thinking:

I expect Fannie Mae and Freddie Mac will ultimately emerge as more effective and responsible government-sponsored enterprises.

I take this to mean that he did not consider Fannie and Freddie to be either effective or responsible. He knew they were rotten.

So who takes up OFHEO in 2005? Does it surprise you that it is George Bush’s lifelong friend (and school mate) James B. Lockhart?

Consider the circumstances. Lockhart comes in over the fraud disclosure issue. He must know that this is the hot button. It’s the reason he has the job! Does he do anything about it? Is he not aware of what happened with TBW and Fannie? Is he not aware that Freddie is buying billions in loans from TBW?

Lockhart does nothing and the opportunity for massive fraud on the people has been assured.

Now consider the role of a central player in all of this. David Stevens. He was the SVP at Freddie that made all of this happen. He left Freddie in 2005. Right at the time that Falcone was pushing for fraud disclosure. David had a fine career at Wells and Long and Foster where he continued to be a big shot in the mortgage industry. His chance to really shine came in 2009 when he was appointed head of FHA:

So what does our boy David do less than two months after taking on this big job? He blows up TBW:

David had to know all along that TBW was dirty. Give the guy some credit. Back in 2002 he gets a call from TBW where 100% of the new business is being offered to him. He knows that TBW is a big customer of Fannie, but he never asks why the switch? Not in a million years.

Mr. Stevens just got another big job. He’s out of government, but he hasn’t left D.C. Today he is running the Mortgage Bankers Association.

Quite frankly, this whole story makes me want to puke.