Mortgage News: Ex-CEO Gets Prison Time for $3B Mortgage Fraud, JPMorgan to Pay $154M Settlement

The ex-CEO of what had been one of the largest privately-held mortgage lenders was sentenced jail time Tuesday for a $3 billion fraud that goes down as one of the biggest corporate frauds in U.S. history. In other mortgage news, JPMorgan Chase has agreed to pay $154 million to settle a case alleging it misled mortgage securities investors during the housing market slump.

Ex-CEO Sentenced to 40 Months in Prison

Paul R. Allen, 55, received a 40-month sentence on Tuesday after being found guilty of mortgage fraud. The former chief executive of Taylor Bean & Whitaker, based in Ocala, Florida, had taken part in selling banks billions of dollars in mortgages that had already been sold to other investors.

One of the victims of this crime was Alabama-based Colonial Bank. The bank had purchased hundreds of millions of dollars in already-purchased mortgages. This transaction contributed to the bank’s collapse, which was the sixth largest bank failure in U.S. history.

Two other banks suffering from the scheme include Deutsche Bank and BNP Paribas, which lost nearly $2 billion after buying corporate paper that wasn’t properly backed with collateral.

Taylor Bean collapsed in 2009 after the criminal investigation became public, resulting in all 2,000 of its employees losing their jobs. The 40-month term Allen received is slightly less than the six years federal prosecutors pushed for.

JPMorgan Agrees to $154 Million Settlement

The securities arm of JPMorgan Chase & Co. has agreed to pay $153.6 million to the Securities and Exchange Commission (SEC) to settle a claim by the agency that the company had misled investors in a mortgage securities transaction during a time when the housing market was just beginning to slump, according to the Dayton Business Journal.

Regulators say the bank marketed a collateralized debt obligation (CDO) without telling investors that a hedge fund that was selecting the assets for the portfolio would benefit if the CDO defaulted.

Investors who were misled during this period will receive all of their money back under the terms of the settlement. The company also said it would improve the way it reviews and approves mortgage securities transactions.