Feds Doubt $125M In Funds Missing From U.S. Mortgage Will Be Found
Credit Union Journal
June 29, 2009
HEADLINE: Feds Doubt $125M In Funds Missing From U.S. Mortgage Will Be Found
BYLINE: Ed Roberts, Washington Bureau Chief
NEWARK, N.J.-Authorities are doubtful of locating any of the $125 million of
credit union funds missing from U.S. Mortgage Corp. after its owner and founder
Michael McGrath surreptitiously sold them to Fannie Mae in what has become the
biggest credit union fraud.
McGrath confessed in court to selling $140 million loans his CU National
Mortgage unit was servicing and pocketing the funds. Authorities said McGrath
has agreed to forfeit about $13 million worth of property, but they believe
McGrath lost the remaining funds while day-trading in the stock market.
"This was truly a massive fraud, a giant shell game by McGrath," said Acting
U.S. Attorney Ralph Marra. "McGrath deftly and fraudulently moved these mortgage
assets around and sold them while the institutional owners had no idea they no
longer held the assets."
McGrath confessed to posing as executives of as many as 30 CUs and signing
over the mortgages to Fannie Mae. When authorities were closing in on the scheme
U.S. Mortgage filed for bankruptcy in February.
The CUs are now fighting Fannie Mae over the return of their mortgages. James
Forte, a New Jersey attorney representing Picatinny FCU, which is suing Fannie
Mae, said they are negotiating with the mortgage giant but have met with
resistance so far.
Fannie Mae is insisting that it should not have to return the mortgages to
the CUs because it did not know that McGrath was not a legal representative of
the CUs, according to the suit. Fannie Mae representatives refused to comment.
"McGrath lost it in the market," said David Stein, a New Jersey attorney
representing the unsecured creditors committee in the case.
Several credit unions victimized in the fraud have filed bond claims with
CUNA Mutual Group, which has denied coverage.
CUNA Mutual would only confirm it has received the claims, saying, "CUNA
Mutual has received bond claims from several credit unions relating to the
activities at CU National Mortgage. Although we have to maintain confidentiality
to protect the interests of our customers, we actively work with all of our
insureds in resolving any of their specific open-claim matters."
Hours after McGrath's guilty plea in U.S. District Court in Newark, Zurich
American Insurance Co. and its Fidelity & Deposit Co. unit asked the court to
allow it to cancel the bond it held for U.S. Mortgage because the company has
ceased originating loans. "As such, U.S. Mortgage no longer requires the surety
bonds to support or guarantee its business operations," the company said in its
filing. In addition, U.S. Mortgage stopped paying premiums on the bond after it
filed for bankruptcy, voiding the policy, the insurer asserted.
The next step will be for creditors in the case to move to convert from
Chapter 11 to Chapter 13 liquidation, then seek recompense fro third-parties,
such as the insurers, said Stein. "Claims have been made over the past month or
so," he said. "No one has offered to write a check."
URL: cujournal.com |
