Fannie Mae Settles With Biggest Victims Of CU National Fraud
WASHINGTON – Fannie Mae has agreed to settle multi-million dollar claims brought by several of the biggest victims of the massive CU National mortgage fraud, more than two years after the scandal brought down the largest independent mortgage bank for credit unions.
Fannie recently agreed to settle claims brought by New York’s Suffolk FCU, New Jersey’s Picatinny FCU and Washington, D.C.’s Treasury Employees FCU, who claimed more than $62 million of their mortgages were improperly sold to Fannie Mae as part of a $140 million fraud perpetrated by Michael McGrath, president of U.S. Mortgage Corp. and its wholly owned CU National Mortgage subsidiary, according to sources and court records. McGrath is serving a 14-year prison term after pleading guilty to the fraud.
Lawyers for the credit unions declined to comment but sources knowledgeable with the settlements say the combination of the Fannie May payments and insurance from CUMIS will reimburse the victim credit unions for more than 90% of their original claims.
The settlements leave just two remaining credit unions out of an original 28 fraud victims with outstanding claims against Fannie Mae. They are New Jersey’s Proponent FCU, which is still grappling in court with Fannie over a $21.6 million claim, and New York’s Sperry Associates FCU, which had a $9.2 million claim. Lawsuits filed by the two credit unions are proceeding in federal court.
Meantime, Picatinny, which had a $13.2 million claim in the case, last week filed suit against CUMIS, which it alleges has denied its claim. Picatinny is seeking as much as $5 million on its bond claim.
McGrath, whose firm at one time was either originating or servicing mortgages for as many as 140 credit unions, sold the mortgages to Fannie Mae on his own and kept the proceeds, using them to finance his business and his lifestyle. After the scheme was discovered, U.S. Mortgage filed for bankruptcy in Feb. 2009 and was liquidated shortly thereafter.
For its part, Fannie Mae claims it also was a victim of the fraud and was not aware that McGrath was not authorized to sell the credit union mortgages it bought.