Quantcast
Several other repayment possibilities remain in the restitution and liquidation process. Image: Fotolia.
Several other repayment possibilities remain in the restitution and liquidation process. Image: Fotolia.
Partner Insights

Payments from CU National Make Most CUs Almost Whole

SEP 23, 2013 12:15pm ET
Print
Email
Reprints
Twitter
LinkedIn
Facebook
Google+

The first installment of restitution from the estate of CU National makes most of the credit unions almost whole in the recovery process as separate settlements with their insurer, CUMIS Insurance Society, and Fannie Mae, where their mortgages ended up, preceded the latest payout, according to two credit union executives who declined to be identified because the terms of their CUMIS and Fannie Mae agreements are confidential.

The huge fraud caused an uproar at many of the credit unions and at NCUA because the potential losses just as the mortgage bust was creating red ink elsewhere on their books threatened to force them into insolvency. At the time, NCUA was dealing with burgeoning losses among credit unions and the corporate system.

Erin Kennedy, a New Jersey attorney representing both the restitution estate and the Chapter 11 bankruptcy estate for U.S. Mortgage, said the initial restitution payments were sent to 26 credit unions and Fannie Mae and amounts to 14.8% of their claims.

Several other repayment possibilities remain in the restitution and liquidation process, including the pay out of millions from a recent settlement with U.S. Mortgage Corp.'s auditing firm, J.H. Cohn LLP, and ongoing litigation with Fannie Mae, according to Kennedy.

The restitution payments were made possible under a plea agreement with Michael McGrath, the president of U.S. Mortgage/CU National, who sold $140 million of mortgages he was supposed to be servicing for credit unions to Fannie Mae, then lost virtually all of it gambling in the plummeting stock market of 2007-2008.

McGrath, now 49, was sentenced in 2011 to 14 years in federal prison and agreed to pay the $140 million in restitution. However, after selling all of his assets, the estate only realized about $15 million, which is expected to go to credit union victims, according to Kennedy.

The huge mortgage fraud resulted in a flurry of litigation that is still in the process of being resolved. The bankruptcy trustee sued Lloyd's of London which had a fidelity bond on U.S. Mortgage, but the suit failed because McGrath took out the policy using mistruths, according to Kennedy. That is, he swore to abide by legal contracts while he was engaged in the massive embezzlement.

Numerous credit unions sued CUMIS, the CUNA Mutual Group unit, which initially balked at paying out claims. CUMIS eventually settled most of the suits at confidential terms.

Several other credit unions sued Fannie Mae for return of their mortgages or the proceeds they had sent to McGrath. After avid lobbying in Congress and with Fannie's regulator, the Federal Housing Finance Agency, by the credit unions and NCUA, the mortgage giant agreed to settle most of the claims. The terms of those agreements are also confidential.

Fannie then sued Lloyd's of London and several other insurers to recoup those claims and settled. Those terms are also confidential. But as a result, Fannie is entitled to a portion of the restitution funds, according to Kennedy, the attorney representing the estate.

Among the credit union victims of the huge fraud were: Picatinny FCU, Sperry Associates FCU, Suffolk FCU, Treasury FCU, TCT FCU, Proponent FCU, Educational Systems FCU, British Airways Employees FCU, ADP FCU, Delaware First FCU, First Florida CU, Jersey Trades Financial CU, JM Associates FCU, Lassen County FCU, Miami Firefighters FCU, Novartis FCU, Penn East FCU, Pinnacle FCU, Rutgers FCU and Piedmont Advantage CU.

Twitter
Facebook
LinkedIn
Already a subscriber? Log in here
Please note you must now log in with your email address and password.