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WASHINGTON-Fannie Mae has settled claims with the vast majority of the 28 credit union victims of the $140 million U.S. Mortgage/CU National Mortgage fraud but is still balking at settling claims with a half dozen of the biggest claimants.

"We expect to go to court as soon as December and we're confident we will prevail," said James Forte, an attorney for New Jersey's Picatinny FCU, which has sued the mortgage giant for the return of more than $14 million of its mortgages Fannie Mae bought from CU National as part of the massive fraud. "We're ready to go to court," said Forte.

The other biggest claimants, including Suffolk FCU, which has a $32 million claim, Treasury Employees FCU, some $17 million, Sperry Associates FCU and TCT FCU, are also continuing their efforts at recompense and have yet to settle with Fannie Mae, several sources told the Credit Union Journal.

"Fannie Mae did not inform us that it would be taking this action and its implications are yet to be determined. However, if this lawsuit against insurance carriers means that Fannie Mae is taking steps to make whole Suffolk Federal Credit Union and the other credit unions whose mortgage loans Fannie Mae refuses to return, that would be a very welcomed development," said William O'Brien, president of New York's Suffolk FCU. "As for our litigation against Fannie Mae, nothing has changed. We continue to pursue our claims against Fannie Mae in federal court in New Jersey. "

The continued stand-off is puzzling observers because Fannie Mae has filed suit against its insurers claiming it will pay out some $133 million in the case, which would cover all of the credit union claims in the massive fraud. The Fannie Mae suit seeks a total of $108 million, after accounting for a $25 million deductible on the policies. The claim is puzzling because it is clear that Fannie Mae has not incurred that amount of losses yet.

Fannie Mae, as it has throughout the two-year scandal, has refused to comment on the case.

But in court documents Fannie Mae insists it was also a victim of the fraud and should not be required to pay the claims.

But CEOs of several of the smaller claimants say they have settled with Fannie Mae and with their own insurer, CUNA Mutual Group, and with an estimated $13 million worth of assets in the liquidation pool for U.S. Mortgage/CU National, expect to recover almost all of their losses from the massive fraud.

CUNA Mutual, which had sued the CUs for a declaratory judgment that it was not responsible for the fraud claims, has settled with 17 of the credit unions, according to a spokesman for the company. Terms of the settlements are confidential, the spokesman said.

The losses were created when Michael McGrath, the president and founder of the mortgage company, which was servicing mortgages for the credit unions, sold the mortgages-about $138 million worth-to Fannie Mae without the knowledge of the credit unions, and kept the proceeds for himself. McGrath has pleaded guilty to criminal fraud charges but admitted to federal prosecutors that he gambled away most of the money in the plunging stock market.

Under a plea bargain, McGrath has agreed to forfeit about $13 million worth of assets that will eventually be distributed as part of a payout to victims of the fraud. McGrath's sentencing in the case has been delayed several times and is now scheduled for later this month.



LOS ANGELES-Former directors of WesCorp FCU urged a federal court last week to dismiss a civil suit brought against them by NCUA, saying the federal regulator was well aware of what WesCorp managers were doing in the build-up to the failure of the one-time $34 billion corporate.

"The NCUA knew then what Defendants were doing and how they were doing it, said the directors in their court brief. "It therefore has no business suing them now for billions of dollars on account of business decisions that the NCUA's statutes and regulations and its examiners permitted-and indeed applauded-at the time."

The directors assert that at the time WesCorp was investing in risky mortgage-backed securities, "NCUA gave WesCorp the highest level of expanded investment authority, including permission to buy securities rated as low as BBB, and that the NCUA therefore subjected WesCorp to the very highest level of regulatory scrutiny including on-site NCUA examiners who had real-time access to all (asset liability management reports) and Board reports, and daily access to WesCorp personnel."

"When big losses occur, there is an all-too-human desire to find scapegoats," stated the directors. "Doubtlessly WesCorp made some investment decisions that, with 20/20 hindsight and full knowledge of the credit crisis of 2008-09, one might wish it had not made. But it is one thing to regret an investment and quite another to ask a group of unpaid volunteer directors to ante up $6.8 billion in damages for having made, in perfect good faith, some investment decisions that did not work out as one might have hoped."

The motion for summary judgment to dismiss the charges against the directors comes in response to NCUA September 1 amended complaint that charged the directors and top executives of the failed corporate with breach of fiduciary duty and gross negligence in overseeing the demise of the corporate giant. The WesCorp failure is projected to cost as much as $7 billion, which will be paid by natural person credit unions all around the country.

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