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CU National Mortgage - Credit Unions - Wholesale

2009-02-12

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stories: fbi.gov, cutimes.com, cutimes.com

Update - 2009-06-12: Michael McGrath, former President and CEO of U.S. Mortgage Corp. and subsidiary CU National Mortgage, plead guilty to one count each of wire fraud and money laundering in federal court 2009-06-11. McGrath faces a maximum combined sentence of 30 years on the charges, but will likely face an actual sentence of two years or less in federal prison. From the FBI's press release:

"Under his plea agreement, McGrath faces an actual sentencing range of between 150 and 240 months in federal prison. He also will have to pay restitution to the victims and has agreed to forfeit to the United States the contents of several bank and brokerage accounts and his interest in a Hoboken property. The plea agreement does not bind Judge Hayden, who must consult the advisory sentencing guidelines, but has discretion in imposing a sentence within, above or below the determined guidelines range."

Acting U.S. Attorney Ralph J. Marra, Jr. called it "a giant shell game." CU Times said McGrath directed his servicing manager and chief financial officer to falsify reports and divert funds in an attempt to disguise the scheme, which netted $139 million for the company before it fell apart. McGrath admitted "approximately $13 million in funds that the government has frozen or seized to date were involved in, derived from or traceable to his offenses."

Update - 2009-03-03: Picatinny FCU filed its "adversarial" proceeding against the bankruptcy of U.S. Mortgage today. In the text and exhibits of the 217-page filing we find even more detail on the allegations of fraud against U.S. Mortgage Corp. and confirmation there had been an ongoing investigation by federal authorities. From page 7, item 27:

"On January 27, 2009, Picatinny's messenger arrived at CU National's place of business. Upon arrival, the messenger noticed that police and other law enforcement officials had encircled the entire building in which CU National was located. When the messenger approached the building, she was told by law enforcement officials that no one was permitted to leave CU National or enter its business premises. The Picatinny messenger also saw law enforcement officials exiting the building with documents obtained from CU National's office. Law enforcement officials asked Picatinny's messenger whether she worked for CU National or U.S. Mortgage; she responded that she worked for Picatinny and was there to pick up loan files. Law enforcement officials responded "not today" and that she should leave the premises."

Included was Picatinny's account and exhibits submitted in support alleging direct involvement by U.S. Mortgage Corp.'s President and CEO Michael J. McGrath, Jr. From pages 10 and 11, items 36 and 37:

"Unable to obtain any documents and information from CU National, Picatinny contacted Fannie Mae to determine whether CU National had fraudulently assigned to it Picatinny loans. On February 5, 2009, Fannie Mae confirmed that eight Picatinny loans that CU National reflected on its trial balance as of December 31, 2008 had been assigned to it by CU National and provided the underlying loan documents.

To assign these loans without Picatinny's knowledge or authorization, CU National prepared an allonge to the notes and assignments of mortgages in favor of U.S. Mortgage, which then indorsed the notes and assigned them to Fannie Mae. As a purported Assistant Vice President of Picatinny, Michael J. McGrath, the President and Chief Executive Officer of U.S. Mortgage, executed the allonges and assignments to U.S. Mortgage. The total outstanding amount of these eight loans exceed $2 million. A copy of these fraudulently indorsed allonges and assignments are attached collectively as Exhibit F."

The filing goes on to state that McGrath was at no time an officer, director or employee of Picatinny with authorization to execute the documents. The full complaint against U.S. Mortgage includes one count each of material breach of contract, conversion and fraud.

Update - 2009-02-28: In an article published 2009-02-27, National Mortgage News reported the FBI was investigating U.S. Mortgage Corp., owner of Credit Union National Mortgage, on "claims of a massive fraud." U.S. Mortgage Corp. filed for Chapter 11 Bankruptcy on 2009-02-23. Listed as the top twenty creditors on the voluntary petition were Fannie Mae (with a claim of over $99 million) and 19 credit unions (whose combined claims exceed $105 million). An amended List of Creditors Holding 20 Largest Unsecured Claims with yet even higher totals was subsequently filed on 2009-02-25.

The purported investigation may have stemmed from an Objection filed by Picatinny Federal Credit Union of Dover, New Jersey. U.S. Mortgage Corp. was the servicer for Picatinny's mortgages. From the complaint:

"The crux of the fraud against Picatinny is that the Debtor sold fifty-eight (58) Picatinny mortgage loans totaling in excess of Fourteen Mil1ion ($14,000,000) Dollars to the Federal Home Mortgage Association ("Fanie Mae"), without Picatinny's knowledge or authorization and without paying Picatinny the proceeds of those loans."

Attached in an exhibit was a letter from Andrew Liput of U.S. Mortgage Corp. dated 2009-02-12 notifying Picatinny FCU of the following:

"We regret to inform you that we have discovered that our servicing system has been producing erroneous servicing portfolio reports to your credit union. The exact time period in question is still under investigation. At this point in our continuing investigation we believe that the actual number of loans we have held for servicing for you are 228 loans totalling $34,174,179.09. A trial balance as of today is attached with complete details.

Any loan not on this trial balance you believe you owned appears to have been sold without your authory to Fannie Mae and the sales proceeds subsequently diverted. At this point in our investigation we believe that 40 loans were sold without your authorization. Thus it appears that a total of $9,491,133.85 in sales proceeds were diverted."

CEO Michael McGrath is not named personally in the letter or Picatinny's complaint, and we found no public record of indictment or arrest in connection with the allegations or ongoing investigation.

Original Listing - 2009-02-12: We had been waiting to hear the status of CU National Mortgage in the wake of the implosion of its parent U.S. Mortgage Corp., and it came from the CU Times:

"CU National Mortgage is still servicing loans, but the company is no longer originating new mortgages."

A 2007-07-11 article in the CU Times gives us an idea of the scope of CU National's operation in the past:

"CU National Mortgage is a mortgage product and service provider to credit unions nationwide that serve over 100 credit union clients. The company (http://www.cunational.com) closed over $1 billion in loans last year..."

CU National was headquartered alongside U.S. Mortgage Corp's main office in Pine Brook, NJ. From forum dicussion about U.S. Mortgage, we discern as many as 400 people will be directly affected by the shutdown of CU National. Further impact will be felt by the company's clients themselves, as one tipster wrote:

"CU mortgage was a big player in purchasing and packaging loans originated from smaller credit unions. Credit unions who do not have the size or structure to do the warehousing and sales themselves used CU mortgage as a conduit for selling. So this closure really hurts a lot of credit unions that now have their pipeline closed up."

As always, we welcome your input whether by comments below or via email should you have additional details to add to this listing.


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Comments:

catherine at 20:48 2009-02-13 said:
been wondering why credit unions weren't mentioned much in this downturn, their fate is based on the same value as everyone elses is.... Permalink

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Important: This company is on our list of lending operations that have "imploded". However, please note that "imploded" is a somewhat subjective and does not necessarily mean operations are ceased permanently: it can mean bankruptcy filing, temporary but open-ended halting of major operations, or "firesale" acquisition. All information here is provisional, and may contain inaccuracies (especially newer information). If you are planning on doing business with this company or any other one listed on this site, you should inquire with them directly on whether they can still meet your needs. Many are still operating in some capacity.