WASHINGTON — A group of credit unions whose mortgages were fraudulently sold by defunct U.S. Mortgage Corp/CU National Mortgage to Fannie Mae are lobbying Congress for return of their stolen funds, part of a $140-million fraud by the former owner of U.S. Mortgage.
The group of 16 credit unions are asking Congress to direct Fannie Mae, which is now owned by the federal government, to return their mortgages, which U.S. Mortgage President Michael McGrath confessed in June to selling to Fannie Mae without their knowledge or consent. So far, Fannie Mae has rejected legal pleas for the return of the mortgages and is fighting a suit brought by one of the credit union victims, Picatinny FCU of New Jersey.
"I don't know what the full story is about what McGrath did with the money but we do know that he sold them to Fannie Mae," said Alfred Scipio, president of Treasury Department FCU, who claims Fannie Mae illegally holds $8.8-million of his credit union's mortgages. "We believe that they bought stolen merchandise and they should return it."
McGrath confessed to selling more than $138 million of mortgages his company was servicing for about 30 credit unions and lost almost all of the money on stock trading. Among other trades, he purchased 2 million shares of Fannie Mae common as it was on its way to a penny stock, just before the government took over the company last September. McGrath has agreed to forfeit about $13 million of assets, leaving credit unions with a hole of about $130 million.
U.S. Mortgage and its CU National Mortgage subsidiary filed for bankruptcy in February as authorities were closing in on McGrath's scheme and has been liquidated since then.
The group has hired a Washington PR firm and lobbyists and plans to solicit Congress to direct Fannie Mae for return of the stolen mortgages. Fannie Mae did not respond to requests for comment.
In the Picatinny case, Fannie Mae asserts it did not know that McGrath was not authorized to sell it the credit union mortgages and that it too is the victim of the fraud.
Several of the credit unions have filed bond claims with CUNA Mutual Group over the fraud and are in negotiations over coverage. But a settlement with Fannie Mae on the return of the mortgages could make the claims unnecessary, according to Treasury's Scipio.
Scipio said potential losses from the fraud could push some credit unions into insolvency, even forcing NCUA to take them over. If that were to happen it could pose one government entity against another in this legal dispute.
