UPDATE 2-Ex-Taylor Bean chairman found guilty of fraud
* Fraud led to at least $1.9 bln in losses--prosecutors
* Justice Dept: Scheme also led to collapse of U.S. bank
* July 1 sentencing; he could get up to 30 years in prison (Adds Justice Department comments, Farkas testimony at trial)
WASHINGTON, April 19 (Reuters) - The former chairman of one of the largest mortgage firms to collapse in the recent U.S. housing market crash was found guilty on Tuesday of masterminding one of the biggest bank frauds ever, the Justice Department said.
It said Lee Farkas of Taylor, Bean & Whitaker Mortgage Corp was convicted on all 14 counts of bank, securities and wire fraud, as well as conspiracy to commit fraud.
Assistant Attorney General Lanny Breuer told reporters Farkas masterminded the multibillion-dollar, 10-year fraud scheme that led to TBW's downfall and the collapse of a top 50 U.S. bank, Colonial BancGroup Inc's CBCDQ.PK Colonial Bank.
The guilty verdict by a federal jury in Alexandria, Virginia, represented a victory for the Obama administration, which has brought few cases involving senior executives at major financial institutions after the housing crisis.
"This is a very momentous and a very significant case," said Breuer, the head of the Justice Department's Criminal Division.
Breuer and another department official called it one of the largest bank frauds in history.
The jury deliberated part of Monday and on Tuesday before returning the guilty verdict after a two-week trial.
A federal judge set sentencing on July 1. A department spokesman said Farkas faces a maximum penalty ranging from 20 to 30 years in prison.
Fraud at TBW led to at least $1.9 billion in losses, including to federal housing programs and maybe billions more, prosecutors said. TBW and the bank both filed for bankruptcy in August 2009.
Alabama-based Colonial Bank was shut down by bank regulators and most of its assets were sold to BB&T Corp (BBT.N). The Federal Deposit Insurance Corp estimated the closure cost the Deposit Insurance Fund about $2.8 billion.
Farkas was charged with trying to cover up massive losses at TBW by moving funds around between accounts at Colonial Bank and also selling mortgage loans that either did not exist, were worthless or had already been sold.
He and his co-conspirators were accused of misappropriating money from one of its own funding vehicles, which had two major investors: Deutsche Bank AG (DBKGn.DE), which had agreed to buy up to $1.25 billion in commercial paper and BNP Paribas SA (BNPP.PA), which had agreed to buy up to $500 million.
GUILTY PLEAS BY FORMER TOP EXECUTIVES
Before Farkas went on trial, several former executives from TBW and Colonial Bank pleaded guilty for their roles in the fraud, including former TBW chief executive officer Paul Allen, and many of them testified during the trial.
Farkas took the witness stand near the end of the trial to deny any wrongdoing, describing the firm he built as "my life" and that any fake loans on TBW's books were merely "mistakes," which happened regularly in the mortgage industry.
He said TBW crashed because it was "growing too fast and it was too, in retrospect, too highly leveraged."
Farkas said the former executives at TBW and Colonial Bank pleaded guilty because they were scared and "just tried to save themselves. ... I don't think that they did anything wrong and I don't think they thought they did anything wrong either."
As losses mounted at TBW, the firm tried to drum up capital to help Colonial Bank win $553 million in funding from the federal bank bailout program known as the Troubled Asset Relief Program, prosecutors said. No money was disbursed.
The verdict comes as the Obama administration has been criticized by lawmakers for moving too slowly to bring major cases against senior executives at financial institutions.
Earlier this year, federal prosecutors dropped a probe of former Countrywide Financial CEO Angelo Mozilo after determining his actions in the mortgage morass did not amount to criminal wrongdoing. (Editing by Bernard Orr, Carol Bishopric and Andre Grenon)