Feds Eye More Guilty Pleas In $140 Million CU National Mortgage Fraud

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NEWARK, N.J. – Federal prosecutors are negotiating guilty pleas with at least three more executives of U.S. Mortgage/CU National Mortgage in the fraudulent sale of $140 million of credit union mortgages to Fannie Mae, sources in the case said Friday.

Court records in last week’s guilty plea by Leroy Hayden, the former servicing manager at U.S. Mortgage, name three other co-conspirators who have yet to be charged: the former chief financial officer, the chief accountant and the company’s trade coordinator. Sentencing for Michael McGrath, the company’s president who masterminded the huge fraud, has been delayed until July while the other suspects are negotiating guilty pleas, several sources told Credit Union Journal Friday.

Hayden told authorities he provided numerous reports to credit unions falsely stating that loans that had been sold were still in the credit unions’ portfolios, and falsified records, at McGrath’s direction, to conceal these fraudulent sales. Hayden also admitted that he modified data in U.S. Mortgage’s servicing system to help carry out the scheme.

As many as 28 credit unions in the Mid-Atlantic States stand to lose as much as $125 million in the case and are frantically negotiating with Fannie Mae for the return of their mortgages. Several of the credit unions also are in litigation with their insurer, CUNA Mutual Group’s CUMIS Insurance Society over coverage of the fraud.

CUNA Mutual said Friday it reached settlements with 17 of the credit unions, meaning a total of 19 of the 25 credit unions involved have settled their insurance claims with the company.  “We’re hopeful the recent settlements will be helpful in resolving the remaining matters, and we're pleased that we’re making progress in resolving this situation in a manner that's fair for everyone,” said Phil Tschudy, spokesman for CUNA Mutual.

All of these arrangements are confidential agreements with the credit unions involved.

A federal court in Maryland dealt CUNA Mutual a defeat last week when it ruled that one credit union in the case, Educational Systems Employees FCU, can proceed with a federal suit challenging CUNA Mutual’s rejection of its bond claim in the case. CUNA Mutual had asked the court to move the case to state court in Wisconsin where it is seeking a declaratory judgment that its bond does not cover the claims in the U.S. Mortgage fraud.

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