McGrath to be sentenced later this month?
Credit Union Journal
February 7, 2011
SECTION: GENERAL NEWS; Pg. 13 Vol. 15 No. 6
LENGTH: 381 words
HEADLINE: Fannie Seeks Dismissal Of Lawsuit
BYLINE: Ed Roberts
BODY:
NEWARK, N.J.-Fannie Mae told a federal court it should dismiss claims over
fraudulent CU mortgages its bought from defunct U.S. Mortgage Corp. and its CU
National unit because it holds legal right to the loans. But lawyers for four
CUs suing for the return of some $60 million of their mortgages sold by CU
Mortgage to the secondary mortgage giant told the court their claims should not
be dismissed because Fannie Mae obtained the mortgages under a massive fraud.
U.S. Mortgage Corp. CEO Michael McGrath, who pleaded guilty to fraudulently
selling some $140 million of CU loans to Fannie Mae he used to keep his company
afloat, is expected to be sentenced later this month to as many as 20 years
behind bars. Prosecutors expect to recover about $15 million from the sale of
McGrath's assets, leaving about $125 million still missing.
Smallest Victims Settle, Biggest Victims Still Fighting
The smallest CU victims have settled claims with both Fannie Mae and CUMIS
Insurance Society, amounting to recoveries of as much as 90%. Under the
settlements, Fannie has agreed to give back the mortgages to the smaller
claimants. But the larger claimants, who stand to lose far more than their
$5-million CUMIS coverage limit, continue to fight. Four have filed suit against
Fannie, including New York's Suffolk FCU and Sperry Associates, New Jersey's
Picatinny FCU and Proponent FCU.
James Forte, an attorney representing Picatinny, said the CU expects new
disclosures in the suit to dissuade the judge from dismissing the case and even
prompt a verdict in its favor. Fannie Mae lawyers did not return phone calls
seeking comment.
The latest court filings show that Fannie Mae was notified as early as 2005
that U.S. Mortgage may be commingling clients' funds. The results of its audits
prompted Fannie to characterize U.S. Mortgage as "red" or "high risk" in March
2005, some four years before the fraud scheme was uncovered. High risks such as
that were ignored by Fannie Mae because of the growing business, as much as $250
million a year by 2008, it had with the credit union mortgage bank, according to
the suit.
The suit asserts the failure to detect such business risk, even after it was
properly flagged, was part of years of mismanagement at Fannie Mae, which led to
its 2009 federal takeover. |
