WASHINGTON – Congress is looking into the massive fraud committed by U.S. Mortgage/CU National Mortgage through Fannie Mae, ratcheting up the pressure on the mortgage giant to settle approximately $125 million in claims more than two dozen credit unions have in the case.
Congressional scrutiny comes as Fannie Mae, run under federal conservatorship since last September, is offering to settle the claims for as little as 20 cents on the dollar, an offer rejected by credit union victims of the huge fraud.
"The deal as proposed is ridiculous," said James Forte, a New Jersey lawyer representing Picatinny FCU, one of two credit unions that have filed suit against Fannie Mae. "We have no deal and we will be starting depositions next week and it is our intent to proceed with the lawsuits."
Picatinny is one of more than 30 credit unions who claim that CU National President Michael McGrath sold as much as $140 million of mortgages his company was servicing for them to Fannie Mae without their authorization. McGrath has pleaded guilty to fraud and is awaiting sentencing. He has agreed to forfeit almost $15 million in assets, the rest he said he lost by trading stocks, including on more than 1 million shares of Fannie Mae stock.
The credit unions are not only balking at the size of the settlement – some credit unions would get less than 20 cents, some more – but at a condition that would require them to waive any potential suit on behalf of the bond insurer, according to sources familiar with the negotiations. In this case, CUNA Mutual holds the bond for most of the credit unions. In the Picatinny case, CU National was servicing more than $35 million of mortgages for the credit union at one time and fraudulently sold almost $14 million worth to Fannie Mae, according to Forte.
In another suit filed by a credit union, Sperry Associates FCU claims Fannie Mae owes it $9.5 million from mortgages sold by McGrath.
Pressure on Fannie Mae tightened again yesterday when NCUA Chairman Deborah Matz sent a letter to Fannie’s regulator, the Federal Housing Finance Authority, insisting on a more equitable deal. Matz said failure to arrive at a fair settlement could push several of the affected credit unions under minimum capital standards and require NCUA to intervene under its prompt corrective action rules. "Indeed, for some of the credit unions, their losses will be so great as to force our agency to take drastic action under the (PCA) rules," said the credit union regulator.
The FHFA declined to comment yesterday. Fannie Mae also declined comment.
