WASHINGTON — Fannie Mae has given more than three dozen credit unions until next week to accept an offer of pennies on the dollar for some $125 million of their mortgages that defunct U.S. Mortgage/CU National Mortgage fraudulently sold to Fannie.
So far, only two of the credit unions have accepted the offer, detailed this afternoon in a letter to Fannie Mae's federal regulator from NCUA Chairman Deborah Matz, who expressed concern at the losses faced by affected credit unions.
"I appreciate Fannie Mae is also a victim of this crime," said Matz in a letter to Edward DeMarco, acting director of the Federal Housing Finance Agency. "However, the financial impact of CU National's fraud on these member-owned cooperatives is significant. Indeed, for some of the credit unions, their losses will be so great as to force our agency to take drastic action under the prompt corrective action rules."
Both the credit unions and Fannie Mae, operating under federal conservatorship the past 14 months, were victim of a massive fraud perpetrated by Michael McGrath, the president of U.S. Mortgage and its CU National subsidiary who sold $140 million of mortgages held on behalf of credit unions to Fannie Mae without authorization and kept the money. McGrath has pleaded guilty to the huge fraud and agreed to forfeit almost $15 million in assets, leaving a $125 million loss for the credit unions. Fannie has given the credit unions until
Nov. 16 to accept the offer but so far only two credit unions have agreed.
Fannie, which has rejected requests to give the mortgages back, has offered to settle with the credit unions for what would amount to less than 20% of the value of the mortgages. If those credit unions realize the 80% of losses it could push several of them into insolvency.
Matz said Fannie's continued reticence is "especially egregious" because Fannie is run by the government under conservatorship and the recipient of billions of dollars in taxpayer assistance. "In our view, it is manifestly unfair to permit a government-sponsored enterprise that survives solely because of massive infusions of tax dollars to benefit from a fraud perpetuated by an entity it held to the public as an "approved" business partner," wrote the credit union regulator.
