Freddie Mac is seeking to put the brakes on a recently proposed $1.6 billion settlement involving the bankruptcy estate of Taylor Bean & Whitaker Mortgage Corp. and Bank of America Corp. over assets tangled up in the massive fraud at the disgraced mortgage lender.

Freddie Mac, owed more than $1 billion from the liquidating mortgage lender, is upset over what is calls a "suspect settlement" involving Taylor Bean, its Ocala Funding mortgage conduit and Bank of America. That deal gives Ocala, which Taylor Bean created and owns, a $1.6 billion unsecured claim against its estate.

Freddie Mac, in papers filed Monday in U.S. Bankruptcy Court in Jacksonville, Fla., said it was concerned that both Taylor Bean and Ocala are being run by the same firm the restructuring firm Navigant Capital Advisors, a unit of Navigant Consulting Inc. Because of the conflict of interest, Navigant couldn't have represented both Taylor Bean and Ocala and, Freddie says, Bank of America appears to lack the authority to settle claims on behalf of Ocala.

Representatives of Navigant and Bank of America weren't immediately available for comment.

Taylor Bean created the Ocala conduit in 2005 to purchase its home loans, which were then bundled into securities and sold to investors such as Freddie Mac.

It funded its business by issuing short-term notes that it sold to investors like Deutsche Bank and BNP Paribas Mortgage. Bank of America served as the trustee for notes issued by Ocala.

The Ocala conduit was a key element in what federal prosecutors said was a seven-year, multibillion-dollar fraud orchestrated by Taylor Bean's founder Lee Farkas, and which brought down Colonial Bank in Montgomery, Ala.

The conduit is also at the center of a pair of breach-of-contract lawsuits for $1.75 billion involving Deutsche Bank AG, a unit of BNP Paribas SA and Bank of America. Bank of America in turn has sued the Federal Deposit Insurance Corp., as receiver for Colonial, for the $1.75 billion in losses at Ocala stemming from fraud at Taylor Bean and Colonial. In addition to the alleged conflicts of interest, Freddie Mac calls the settlement "considerably one-sided" in favor of the banks and Ocala.

"Ocala appears to have been a co-conspirator of TBW in a criminal scheme that resulted in billions of dollars in damages to various creditors, including more than $1 billion in damages to Freddie Mac alone," Freddie said. Taylor Bean former Chief Executive Paul Allen, who was also lead manager of Ocala, is serving a 40-month prison sentence for crimes committed related to the fraud.

If Ocala was a co-conspirator to the Taylor Bean fraud, its claim would be subject to what's known as an equitable subordination lawsuit. Such a suit would bump Ocala's claims below those of other creditors.

Freddie Mac is asking the judge overseeing Taylor Bean's Chapter 11 case to continue a hearing to approve the pact so it can look into the settlement further. U.S. Bankruptcy Judge Jerry A. Funk is to consider the matter at a hearing Wednesday in Jacksonville, Fla.

Freddie Mac and its rival Fannie Mae were seized by the federal government in September 2008.

At one time Taylor Bean serviced nearly $51 billion of Freddie Mac mortgages. Freddie Mac estimates it faces $690 million in losses as a result of the Taylor Bean collapse. But that figure doesn't include the potential claims that creditors of Taylor Bean's Ocala Funding mortgage conduit might assert against Freddie. Those claims could total $840 million, according to Freddie Mac.

Taylor Bean collapsed into bankruptcy in August of 2009 after federal regulators uncovered evidence of fraud and suspended its authority to make loans insured by the government agencies.

Taylor Bean also brought down Colonial Bank. The FDIC was named receiver after regulators seized the bank and sold its assets to BB&T Corp.

In recent months, many of those connected to fraud have been sentenced to prison. In addition to Allen, Lee Farkas, the alleged mastermind of the multibillion dollar scheme and the man who took Taylor Bean from a small mortgage company into the nation's largest mortgage lender not owned by a bank, was sentenced last month to 30 years in prison.

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