NEWARK, N.J. – Fannie Mae, which has paid credit unions tens of millions of dollars to compensate them for the massive fraud at U.S Mortgage/CU National Mortgage, finds itself on the other suit of the court dock in a legal dispute with New Jersey’s Proponent FCU, one of the more than two dozen credit unions embroiled in a $140 million fraud.
Fannie Mae says the credit union owes it more than $1.6 million in servicing on mortgage Fannie says it legitimately bought from CU National.
Proponent was one of almost 100 credit unions doing business with CU National when it went bankrupt in 2009 after it was discovered its president and founder Michael McGrath had been selling credit unions’ mortgage to Fannie Mae and keeping the cash. Fannie Mae claimed it believed that McGrath was authorized by the credit unions to sell the mortgages and remit the proceeds to the credit unions.
Fannie Mae has agreed to various settlements with almost all of the 28 credit union victims. The terms of the settlements are confidential, but in a separate lawsuit filed against its insurers Fannie Mae indicates the amount could be more than $75 million. Lawyers for Fannie Mae did not return a phone call.
McGrath pleaded guilty to the fraud and in March was sentenced to 14 years in prison. But other than the $15 million of assets he agreed to forfeit, the credit union victims of the fraud were out as much as $125 million.
Several of the credit unions have sued Fannie Mae for return of their mortgages, while others have sued CUNA Mutual Group for coverage under their bonds. Most of the credit unions have negotiated settlements with both Fannie Mae and CUNA Mutual Group, which has reimbursed them for an average of 90% of their losses.
In a suit filed in 2010, Fannie Mae claims it bought 80 mortgages CU National originated for Proponent that it believes it has legal right to. The mortgages are being serviced by Midwest Loan Services and Proponent allegedly has collected $1.6 million on those mortgages that belongs to Fannie Mae.
Fannie Mae says that of the 2,549 credit union mortgages it bought from CU National between 1999 and 2009 544 of those were made with the valid authorization.
Fannie Mae claims it is the holder of due course of the mortgages and that Proponent has wrongfully collected the payments on the loans.
Some of the details of the legal dispute were disclosed in a new suit Proponent filed this week against CUNA Mutual, which has denied the credit union coverage of legal fees in its fight with Fannie Mae. In the new suit, the New Jersey credit union asserts that its bond obligates CUNA Mutual to pay defense costs and any settlement it might incur with Fannie Mae in the case.
Officials with Proponent declined to comment yesterday. CUNA Mutual did not respond to a request for comment.
