NEWARK, N.J. – The president and major owner of US Mortgage Corp. and its CU National unit is preparing to plead guilty to fraud and conspiracy charges relating to the transfer of as much as $160 million of credit unions’ mortgages being serviced by the company to Fannie Mae.
A hearing in the case had been scheduled for May 6 when Michael McGrath was expected to plead guilty to the charges, several sources involved in the case told The Credit Union Journal yesterday. The hearing was adjourned and is expected to be rescheduled over the next few weeks.
McGrath, whose family controlled the Pine Brook, N.J., mortgage company, allegedly posed as an officer of dozens of credit unions and sold the mortgages to Fannie Mae without their knowledge and without passing on the funds.
Several other U.S. Mortgage executives are reported to be in plea negotiations with federal prosecutors.
Lawyers for McGrath did not return phone calls seeking comment.
The scheme started to unravel when credit union executives inquired about their mortgages, forcing the company to file for bankruptcy in February.
Separately, Fannie Mae, which is being sued by the credit unions, has refused to return the mortgages, claiming they have no proof that McGrath was not acting on their behalf when he signed documents transferring the mortgages to Fannie Mae.
In court filings, Fannie Mae said it has no evidence that McGrath was not a valid representative of the credit unions when he signed to so-called alonges transferring the mortgages.
"The government (Fannie Mae is under federal conservatorship) seems resolute," said James Forte, a lawyer representing Picatinny FCU, which claims McGrath fraudulently transferred $13.2 million of its mortgages to Fannie Mae. Picatinny is suing Fannie Mae to recover the mortgages.
A spokesman for Fannie Mae declined to comment.
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.
