NEWARK, N.J. — Michael McGrath, the founder and owner of U.S. Mortgage and its CU National Corp., was expected to plead guilty in federal court here late last week to bank fraud and conspiracy charges in what is growing into one of the biggest financial scandals ever to hit credit unions.
McGrath, who had two previous plea hearings rescheduled, has apparently agreed to forfeit as much as $15 million he received for payments of credit union loans his company was servicing that he had fraudulently sold to Fannie Mae, sources involved in the case reported. But as much as $120 million from the proceeds of mortgage sales to Fannie Mae and belonging to as many as 30 credit unions is still missing, the sources said.
Authorities said McGrath sold the mortgages to Fannie Mae by posing as a senior executive for the credit unions, then secreted the funds for his own use.
The credit unions are currently negotiating with Fannie Mae for the return of their mortgages but so far Fannie Mae has resisted, asserting it did not know that McGrath was not authorized to sell them the loans. Fannie Mae representatives declined to comment.
Several of the credit unions have filed bond claims with CUNA Mutual Group that have been rejected. "CUNA Mutual has received bond claims from several credit unions relating to the activities at CU National Mortgage," the company said. "Although we have to maintain confidentiality to protect the interests of our customers, we actively work with all of our insureds in resolving any of their specific open claim matters."
McGrath is believed to be the only U.S. Mortgage official who will be charged. "The U.S. Attorney's office has talked to a lot of people and everybody else has cooperated," one source told Credit Union Journal.
Officials at the U.S. Attorney's office did not return phone calls seeking comment.
U.S. Mortgage filed for bankruptcy in February as investigators were closing in on the scheme. Since then, the company has sold off all of the servicing rights to credit union mortgages to Midwest Loan Servicers, which services more than $6 billion of credit union mortgages, and to Symbionce Servicing, a new operation created by Novartis FCU, one of the credit unions victimized by the U.S. Mortgage scam.
Howard Brownstein, a partner in NachmanHaysBrownstein, the New Jersey company that is liquidating U.S. Mortgage, said the company has shed all of its 400 full-time employees and moved recently from its Pine Brook, N.J., offices to a smaller facility as it winds down its business. "There are no longer any employees," Brownstein said.
More than 30 credit unions have filed claims in bankruptcy court alleging their mortgages were fraudulently sold to Fannie Mae. Among them are: Suffolk FCU, Treasury Department FCU, Novartis FCU, Educational Systems FCU, County Educators FCU, Energy FCU, Rutgers FCU, Piedmont Aviation CU, Pinnacle FCU, Lassen County FCU, British Airways Employees FCU, Diablo Valley FCU, ADP FCU, United Financial Services FCU, Delaware First FCU, Jersey Trades FCU and Frontier Financial FCU.
