It is XMAS time now. Maybe a little holiday cheer for Mike and he won't ever be sentenced?
SNL Insurance Daily
HEADLINE: Fannie Mae, insurers spar over coverage for stolen mortgage loans
BYLINE: David Dankwa
HIGHLIGHT:
Fannie Mae says insurers are wrongfully denying coverage for losses linked to
fraud at U.S. Mortgage.
BODY:
The nine primary and excess insurers in a dispute with Fannie Mae over losses
tied to fraudulent mortgage loans that were stolen from credit unions and sold
to the government-sponsored enterprise are citing among other exclusions a
provision that states that losses resulting from forged or fraudulent mortgages
are covered only if there is a physical taking of the mortgage itself as opposed
to a fraudulent assignment, a federal complaint stated.
According to Fannie Mae, which purchased the mortgage loans from bankrupt
loan servicer U.S. Mortgage Corp., the insurers assert that the fraud is not
covered under certain primary and excess financial institutions bonds.
On Nov. 12, Fannie Mae filed an amended complaint in federal court in
Washington, D.C., seeking to recoup losses from the insurers, Continental
Insurance Co., a subsidiary of Loews Corp.; Travelers Cos. Inc. unit St. Paul
Mercury Insurance Co.; U.S. Specialty Insurance Co., part of HCC Insurance
Holdings Inc.; Great American Insurance Co., an American Financial Group Inc.
subsidiary; Zurich Financial Services Ltd unit Zurich American Insurance Co.;
Liberty Mutual Insurance Co., a subsidiary of Liberty Mutual Holding Co. Inc.;
and Fidelity and Deposit Co. of Maryland. The mortgage provider also seeks
damages against certain Lloyd's of London syndicates and Chubb Corp. subsidiary
Federal Insurance Co., for breach of contract.
The insurers have stated their intention to deny coverage based on other
exclusions not disclosed in the complaint. Fannie Mae, however, insists that it
has satisfied all conditions under the policy.
The loans in question, valued at more than $131 million, proved to be based
on original mortgages that had been stolen from various credit unions and on
mortgage loans that are the subject of counterfeiting, forgeries or other types
of fraud. The mastermind of this massive fraud is Michael McGrath Jr., former
president of U.S. Mortgage, who pled guilty in June 2009 to selling loans
without the permission of the credit unions that owned them, a scheme that
ultimately bankrupted his company.
According to the complaint, McGrath accomplished his scheme by creating and
signing two assignments of mortgages. The first assigned the mortgage associated
with the loan from a credit union to U.S. Mortgage, and the second assigned the
mortgage from U.S. Mortgage to Fannie Mae. In addition, the schemers created and
signed fake documents to facilitate the transfer in ownership of the
accompanying mortgage notes, Fannie Mae claims.
In all, the fraud affected 544 of the 2,549 mortgages sold to Fannie Mae from
1999 to January 2009, originating from 25 of its 91 credit union clients.
Some of the credit unions dispute Fannie Mae's ownership of the mortgage
loans, further complicating the insurance coverage suit. Three of them are suing
the mortgage company to recover the value of the mortgage loans sold as part of
the fraud. Fannie Mae said it has engaged in extensive settlement efforts with
most of the defrauded credit unions and settled with some. While Fannie Mae
insists it is the holder of the fraudulently assigned loans because it purchased
them in good faith, the company also argues that it would still be entitled to
coverage for losses from the fraud based on the value of the mortgage loans it
must pay to the credit unions.
So far, by entering into settlements with certain credit unions, Fannie Mae
has pared down its potential losses to the fraud to about $104 million plus
defense costs, the complaint stated. |
