Fannie Mae Sues Insurers Over $140 Million CU Mortgage Fraud
WASHINGTON – Fannie Mae on Wednesday filed suit against several insurers, including Great American Financial Resources Inc. and The Travelers Cos., claiming they are responsible for losses on the $131 million Fannie Mae paid for fraudulent mortgage loans it bought from U.S. Mortgage Corp. and its CU National Mortgage subsidiary.
In a suit filed in federal court, Fannie Mae said that under Financial Institution Bonds sold by the insurers, they are responsible for the losses. The company says it faces $108 million in exposure.
The suit follows last year’s conviction of Michael McGrath, president and founder of U.S. Mortgage, for fraudulently selling $140 million worth of mortgages it was servicing for 28 credit unions and keeping the proceeds. McGrath said that from 2004 until January 2009 he fraudulently sold credit union loans and used the proceeds to finance U.S. Mortgage’s operations and investments.
The victim credit unions have been embroiled in litigation with Fannie Mae and their bond insurer, CUNA Mutual Insurance, over the last year in efforts to recoup some of their losses. McGrath has agreed to forfeit about $13 million of assets, leaving losses of as much as $125 million for the credit unions.
Other defendants in the Fannie Mae lawsuit are: Chubb Group of Insurance Cos., Lloyd’s of London, CNA Insurance Co., HCC Insurance Holdings Inc.’s Professional Indemnity Agency, Zurich North America, Liberty Mutual Group, and Fidelity & Deposit Co. of Maryland.