Fannie Mae has given more than three dozen credit unions until next week to accept an offer of pennies on the dollar for about $125 million of their mortgages that the defunct U.S. Mortgage fraudulently sold to Fannie.

So far, two credit unions have accepted the offer, outlined Monday in a letter to Fannie Mae's federal regulator from National Credit Union Administration Chairman Deborah Matz, who expressed concern at the losses faced by the affected credit unions.

Michael McGrath, then the president of U.S. Mortgage and its CU National subsidiary, sold $140 million of mortgages held on behalf of credit unions to Fannie Mae without authorization and kept the money. McGrath has pleaded guilty to fraud and agreed to forfeit almost $15 million in assets, leaving a $125 million loss for the credit unions.

Fannie has rejected requests to give the mortgages back and offered to settle with the credit unions for less than 20% of the loans' nominal value. If the credit unions realize the 80% losses, several could become insolvent. Fannie has given the credit unions until Nov. 16 to accept the offer.

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