CU Nationals McGrath To Serve Minimum Of 12 Years Behind Bars
NEWARK, N.J. – Mortgage fraudster Michael McGrath, who siphoned almost $140 million of credit union funds through his U.S. Mortgage Corp. and its CU National Mortgage subsidiary, will serve at least 12 years of a 14-year prison term meted out by a federal judge two weeks ago, according to prosecutors.
McGrath’s sentencing included requirements that he keep clear of an addiction to the anti-depressant Xanax, refrain from gambling and pay restitution to be determined at a later date to credit union victims of the fraud.
Despite a lavish lifestyle that included a luxurious home in the wealthy community of Montclair, N.J. – he agreed to forfeit real estate and a guitar once owned by Aerosmith lead guitarist Joe Perry – prosecutors said McGrath undertook the huge fraud to keep his failing mortgage company afloat. The fraud, said one law enforcement official who did not want to be quoted because the case is continuing, “did not subsidize a life of luxury, but to subsidize a company that should have gone into bankruptcy as early as 2004.”
U.S. Mortgage and its CU National unit filed for bankruptcy in February 2009 as the Feds were closing in on the McGrath fraud.
While McGrath was selling tens of millions of dollars of mortgages his company was servicing for 28 credit unions to Fannie Mae, those funds were being invested in a variety of schemes meant to finance U.S. Mortgage. Among them were 1 million common shares of Fannie Mae. “One of the great ironies of the case, was that that turned out to be a big loss,” said the law enforcement official, of the fall in Fannie Mae shares from more than $64 to just pennies as the mortgage giant was taken over by the Federal government in September 2008.
McGrath also used the credit union funds to trade mortgage-backed securities as that market also cratered. “Essentially, it turned out to be a losing position,” the law enforcement agent said.
In another scheme, McGrath used the proceeds from the fraud to buy controlling shares in Home Solutions of America, another mortgage company, in hopes of a revival, but that company also went under during the mortgage bust.
While a handful of credit unions – the biggest victims of the huge fraud – continue to battle Fannie Mae for return of their mortgages, most of the credit union victims have entered into separate settlements with Fannie Mae. Those settlements combined with insurer payouts for the fraud, are believed to comprise more than half of the stolen funds, leaving an estimated $45 million to be recovered.
That calculation will be taken into consideration when the judge sets a restitution order for McGrath.