Mortgage fraudster Michael McGrath, who siphoned off $140 million of credit union funds through his company, U.S. Mortgage Corp. and its CU National Mortgage affiliate, will serve at least 12 years of a 14-year prison term meted out by a federal judge two weeks ago, according to prosecutors.
McGrath's sentencing included requirements that he keep clear of an addiction to the anti-anxiety medication Xanax, refrain from gambling, and pay restitution to be determined at a later date to credit union victims of the fraud.
Despite a lavish lifestyle that included a luxurious home in the wealthy community of Montclair, N.J. (he agreed to forfeit real estate and a guitar once owned by Aerosmith lead guitarist Joe Perry), prosecutors said McGrath undertook the huge fraud to keep his failing mortgage company afloat. The fraud, said one law enforcement source, "did not subsidize a life of luxury, but to subsidize a company that should have gone into bankruptcy as early as 2004."
U.S. Mortgage and CU National filed for bankruptcy in February 2009 as federal criminal investigators were closing in on McGrath.
While McGrath was selling millions of dollars of mortgages that his company was servicing (for other credit unions) to Fannie Mae, he took the cash and invested in a variety of schemes meant to bolster U.S. Mortgage. He also bought 1 million common shares of Fannie Mae, which eventually became worthless.
McGrath also used CU funds to trade mortgage-backed securities just as that market was crumbling too. In another scheme, McGrath used the proceeds from the fraud to buy controlling shares in Home Solutions of America, another mortgage company, in hopes of a revival, but that company also went under during the mortgage bust.
While a handful of credit unions – the biggest victims of the huge fraud –continue to battle Fannie for the return of their mortgages, many CU victims have entered into separate settlements with the GSE. Those settlements combined with insurer payouts for the fraud, are believed to comprise more than half of the stolen funds, leaving an estimated $45 million to be recovered.
That calculation will be taken into consideration when the judge sets a restitution order for McGrath.
