NEWARK, N.J.-A second insurer, a Lloyd's of London syndicate, is trying to deny liability in the massive U.S. Mortgage/CU National Mortgage fraud for which almost 30 credit unions are seeking recompense of as much as $125 million.
The Lloyd's syndicate has filed suit in federal court in Newark seeking to block any potential insurance claims against it by three credit unions - Picatinny FCU, Suffolk FCU and Sperry Associates FCU - that were swindled out of more than $50 million by U.S. Mortgage President Michael McGrath. The syndicate claims the fidelity bond it held for U.S. Mortgage and McGrath should be rescinded because of the fraud to which McGrath has confessed.
The group is the second insurer seeking to block claims in the case, as CUNA Mutual Group is seeking a court order declaring that the bond it holds for 23 of the U.S. Mortgage credit union victims does not cover the McGrath fraud. Four of the credit unions are counter-suing CUNA Mutual to secure coverage for their losses.
The Lloyd's syndicate holds a Mortgage Bankers and Mortgage Brokers Professional Liability Insurance Policy and a Mortgage Bankers Fidelity Bond on U.S. Mortgage, which filed for bankruptcy a year ago in the face of the fraud probe into McGrath's actions.
Since then, McGrath has pleaded guilty to fraudulently selling as much as $140 million of mortgages he held on behalf of credit unions to Fannie Mae and keeping the funds. After almost $15 million in assets to be forfeited by McGrath, CUs are still out almost $125 million.
McGrath was scheduled to be sentenced for the fraud next month but the sentencing was delayed earlier this week until April 19.
The three credit unions are suing Fannie Mae for the return of their funds and their mortgages and have asked the U.S. Bankruptcy to allow them to file claims against the Lloyd's syndicate.
Fannie Mae has been negotiating with the various credit union victims of the fraud but so far has settled with only one, Education Systems Employees FCU of Greenbelt, Md.
