The FBI investigation into a massive fraud at U.S. Mortgage Corp. and its CU National subsidiary orchestrated by Michael McGrath was initially uncovered by one of McGrath's business partners, who was negotiating his own plea in a separate mortgage fraud case.
Gerald Carti, a former loan officer and shareholder of U.S. Mortgage, Pinebrook, N.J., eventually agreed to plead guilty to a multi-million dollar loan flipping scheme, according to prosecutors in both cases. As part of the scheme, Carti and his co-conspirators purchased cheap two- and three-family rental homes in distressed neighborhoods of Paterson, N.J., and then flipped them at grossly inflated prices to unqualified buyers whose loan applications were doctored with bogus incomes, bank account balances and assets.
Carti, 63, earned $1 million a year as one of U.S. Mortgage's most successful loan originators, but much of that success was due to his willingness to commit fraud, according to prosecutors in Newark, N.J.
Investigators sought Carti's cooperation in 2005, before anyone was charged, but "he thought he could beat this" and refused to cut a deal, according to court records in the case. Carti also encouraged his sons to help investigators unravel a massive $140 million scheme involving the fraudulent sale of loans to Fannie Mae that resulted in a 2009 guilty plea by McGrath, the former president of U.S. Mortgage. Last week McGrath was sentenced to 14 years in prison.
A third U.S. Mortgage officer, Frank Corallo, pleaded guilty in yet another mortgage scam involving subprime loans that were funded back in 2004. At the time he was working as a loan officer and processor for U.S. Mortgage. At the direction of his superiors at U.S. Mortgage, Corallo helped pay off several residential loans that U.S. Mortgage had originated fraudulently. Corallo brokered new, fraudulent subprime loans to pay off the old loans, thus providing additional money to other participants in the scheme. It is not clear if Corallo also helped the FBI with the McGrath case.
To date, only one other U.S. Mortgage employee, Leroy Hayden, a servicing manager, has been convicted in the CU National fraud.
The cases were unwound by a special mortgage crimes task force created by the Justice Department which was coordinated by the FBI, the U.S. Postal Service, the Department of Housing and Urban Development and the IRS.
