Massive Fraud Claimed In C.U. National Mortgage Failure

NEWARK, N.J. The FBI is investigating claims of a massive fraud at U.S. Mortgage Corp., the privately held owner of C.U. National Mortgage, which filed for bankruptcy earlier this week. More than three dozen credit unions are claiming the failed mortgage company owes them more than $110 million of loan proceeds it had collected for them as a servicer. In documents filed yesterday with the U.S. Bankruptcy Court, Picatinny FCU claims C.U. Mortgage sold more than $14 million worth of its mortgages to Fannie Mae without its knowledge and without paying the Dover, N.J., credit union the proceeds of the sale. Picatinny is one of more than three dozen credit unions that filed claims against the troubled lender this week. The largest unsecured claim is by Fannie Mae for $99.2 million, but the next 19 largest unsecured claims are from credit unions, including: Suffolk FCU ($33.8 million); Proponent FCU ($21.6 million); Sperry Associates FCU ($9.2 million); Treasury Department FCU ($8.7 million); Novartis FCU ($3.1 million); Educational Systems FCU ($3.1 million); County Educators FCU ($ 2.8 million); Energy FCU ($2.6 million); Rutgers FCU ($2.2 million)_ Piedmont Aviation FCU ($2.1 million); Pinnacle FCU ($1.8 million); Velocity County FCU ($1.5 million); TCT FCU ($1 million) as, well as Picatinny FCU. Also: Lassen County FCU ($832,000); JM Associates FCU ($502,000); Miami Firefighters FCU ($490,000); First Florida CU ($448,000) and Newark Board of Education Employees CU ($440,000). Other creditors include Harland Financial, Wolters Kluwer and PrimeAliance. Picatinny FCU said after it learned of the sale of its loans to Fannie Mae it demanded the loan files back so it could sell the servicing rights to another provider, but U.S. Mortgage refused the request. As proof of its claims, Picatinny FCU filed a Feb. 12 letter with the bankruptcy court from U.S. Mortgage's general counsel Andrew Liput explaining that $9.5 million worth of its mortgages "appeared to have been sold without your authority to Fannie Mae and the sales proceeds subsequently diverted." The company's attorney said he is working with the U.S. Justice Department, NCUA and regulators in several states in investigating the case. Lawyers for U.S. Mortgage could not be reached for comment yesterday. The owners of the privately held company are: Michael McGrath, Jr., a 35.6% stake; Brian McGrath, 7.6%; Thomas McGrath, 7.6%; James and Lori McGrath, 3%; and Labranche Inc., of New York City, 39.9%. Credit Union Journal