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The US government has reached an agreement with First National Bank of Bar Harbor after a four-year investigation into the bank’s residential loan department activities between 1988 and 1991. The bank will pay a $1-million fine, accept its president’s resignation and replace nearly all the members of its Board of Directors.
The government contended that First National knowingly falsified documents on loan applications sold to the Federal Home Loan Mortgage Corporation (Freddie Mac). In order to assure the loans met the Freddie Mac requirements, the bank allegedly inflated the borrower’s income or the value of the property. Falsified documents included loan applications, employment documents, credit reports and appraisal reports.
In some cases the loans were made to cover outstanding commercial loans for the same borrowers. This served to reduce the bank’s risk and pass the risk on to Freddie Mac, a federally insured program. The process also resulted in the bank earning more income from sales and service fees for the new loans.
However, the agreement did not address the fate of two of the bank officers recently convicted of bank fraud for the same acts. It’s going to be up to the presiding judge to sentence Thomas Clark, the head of the residential loan department, and Thomas McKay, another employee of the bank.
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