First Catholic Federal Credit Union of Taylor, Mich., has sued to terminate CUSO Mortgage Inc.'s loan servicing contract.

The suit, filed Dec. 23 in U.S. District Court for the Eastern District of Michigan, says First Catholic should not have to pay a contractual termination fee of 2% of the mortgages' balance, because CUSO breached the contract. CUSO, a unit of Wescom Central Credit Union of Pasadena, Calif., services loans for as many as 100 credit unions.

The suit claims CUSO failed to post timely payments or file annual mortgage interest-deduction forms for borrowers with the Internal Revenue Service, among other things.

As a result, the $146 million-asset First Catholic claims, its employees have had to perform many of these duties themselves. It asked the court to release the 2% payment, held in escrow, and to order the transfer of the mortgages to a new servicer hired by the credit union.

CUSO and Wescom declined to comment.

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