CU National’s McGrath Gets 14 Years For $140 Million Fannie Mae Fraud

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NEWARK, N.J. – Michael McGrath, the president of U.S. Mortgage Corp. and its CU National Mortgage unit, was sentenced this afternoon to 14 behind bars for a massive fraud in which he sold $140 million of credit union mortgages his company was servicing to Fannie Mae and kept the proceeds.
The fraud has had broad affects on its 28 credit union victims because McGrath gambled away all of the proceeds in the falling stock market, leaving an estimated $125 million of losses for those institutions, which have been fighting Fannie Mae and their insurers for recompense for the past two years. 
Four credit unions have filed suit against Fannie Mae for the return of their mortgages. They are: Suffolk FCU in New York, which claims it is owed $32 million in mortgages; Picatinny FCU in New Jersey $14 million; Sperry Associates FCU and TCT FCU, also in New York have also filed suit against Fannie Mae. U.S. Treasury Department FCU in Washington has a $15 million claim in with Fannie Mae but is not part to any of the suits.
McGrath told prosecutors he used the proceeds from the fraud to keep his faltering Pine Brook, N.J., mortgage company afloat, even buying one million shares of Fannie Mae as the mortgage giant’s stock disintegrated prior to its September 2009 takeover by the federal government. 
U.S. Mortgage filed for bankruptcy in February 2009 was liquidated over the succeeding months.
McGrath, 48, pled guilty to one count of mail and wire fraud conspiracy, and one count of money laundering conspiracy. Despite evidence that McGrath had help in carrying out the fraud, only one other figure has been charged in the scheme, Leroy Hayden, who was the servicing manager for the mortgage company. Hayden pleaded guilty last year to charges of conspiracy in the case.
McGrath admitted that between January 2004 and January 2009, he conspired with several others to fraudulently sell loans belonging to the credit unions and used the proceeds to fund U.S. Mortgage’s operations and his personal investments and investments he made on U.S. Mortgage’s behalf.  The scheme started with the diversion of funds that should have been paid to various credit unions for mortgage loans they had made and authorized CU National to sell to Fannie Mae.  McGrath began withholding these funds to help U.S. Mortgage address cash flow problems caused by losing investments in mortgage-backed securities he had made on the company’s behalf.
The sell the loans, McGrath forged documents–so-called allonges--assigning the loans from the credit unions to U.S. Mortgage in which he pretended to be an officer of the credit unions in question.  He also directed employees at U.S. Mortgage to execute documents purporting to assign the loans from U.S. Mortgage to Fannie Mae.  And he sold some of these loans a second time, to an institution based in New Jersey.  All told, the scheme netted about $139 million.
McGrath was also sentenced to three years of supervised release and restitution will be determined at a later date.

 

NEWARK, N.J. – Michael McGrath, the president of U.S. Mortgage Corp. and its CU National Mortgage unit, was sentenced this afternoon to 14 years behind bars for a massive fraud in which he sold $140 million of credit union mortgages his company was servicing to Fannie Mae and kept the proceeds.

The fraud has had broad affects on its 28 credit union victims because McGrath gambled away all of the proceeds in the falling stock market, leaving an estimated $125 million of losses for those institutions, which have been fighting Fannie Mae and their insurers for recompense for the past two years. 

Four credit unions have filed suit against Fannie Mae for the return of their mortgages. They are: Suffolk FCU in New York, which claims it is owed $32 million in mortgages; Picatinny FCU in New Jersey $14 million; Sperry Associates FCU and TCT FCU, also in New York have also filed suit against Fannie Mae. U.S. Treasury Department FCU in Washington has a $15 million claim in with Fannie Mae but is not part to any of the suits.

McGrath told prosecutors he used the proceeds from the fraud to keep his faltering Pine Brook, N.J., mortgage company afloat, even buying one million shares of Fannie Mae as the mortgage giant’s stock disintegrated prior to its September 2009 takeover by the federal government. 

U.S. Mortgage filed for bankruptcy in February 2009 was liquidated over the succeeding months.

McGrath, 48, pled guilty to one count of mail and wire fraud conspiracy, and one count of money laundering conspiracy. Despite evidence that McGrath had help in carrying out the fraud, only one other figure has been charged in the scheme, Leroy Hayden, who was the servicing manager for the mortgage company. Hayden pleaded guilty last year to charges of conspiracy in the case.

McGrath admitted that between January 2004 and January 2009, he conspired with several others to fraudulently sell loans belonging to the credit unions and used the proceeds to fund U.S. Mortgage’s operations and his personal investments and investments he made on U.S. Mortgage’s behalf.  The scheme started with the diversion of funds that should have been paid to various credit unions for mortgage loans they had made and authorized CU National to sell to Fannie Mae.  McGrath began withholding these funds to help U.S. Mortgage address cash flow problems caused by losing investments in mortgage-backed securities he had made on the company’s behalf.

The sell the loans, McGrath forged documents–so-called allonges--assigning the loans from the credit unions to U.S. Mortgage in which he pretended to be an officer of the credit unions in question.  He also directed employees at U.S. Mortgage to execute documents purporting to assign the loans from U.S. Mortgage to Fannie Mae.  And he sold some of these loans a second time, to an institution based in New Jersey.  All told, the scheme netted about $139 million.

McGrath was also sentenced to three years of supervised release and restitution will be determined at a later date.

 

 

 

 

 

 

 

 

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