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News Now

CU System
CU files suit against CUMIS
MADISON, Wis. (12/8/09)--A Maryland-based credit union affected by fraud at U.S. Mortgage/CU National Mortgage Corp. has filed a civil suit against CUNA Mutual Insurance Society (CUMIS) to recover losses under a bond issued by CUMIS. In the complaint, Education Systems FCU, Greenbelt, said it purchased the bond to protect it from losses incurred under events such as the CU National Mortgage Corp. fraud. However, “the specific circumstances of this claim aren’t covered by our bond,” Phil Tschudy, CUNA Mutual Group media relations manager, told News Now. “We believe other entities have liability for the losses the credit unions have suffered and we are continuing to look for ways to assist the affected credit unions in seeking compensation for those losses,” he added. Madison, Wis.-based CUMIS filed two declaratory judgment actions in June and August in Wisconsin state court asking the court to declare that the bond did not cover the losses suffered by Education Systems FCU. Education Systems FCU said it was served with the August 31 action on Nov. 23. “The declaratory judgment action we filed seeks only to have the court resolve the question around coverage,” Tschudy said. “The action doesn’t seek damages against the credit union. “We were hoping not to have to move forward with the litigation and have been working toward that end,” he added. “However, in fairness to all of our policyholders, we need to abide by and defend the limits of our coverage to avoid having some credit unions subsidize the inactions of others. We remain hopeful this can be resolved in a manner that is fair for everyone." Education Systems FCU experienced losses when a servicing contractor hired to collect mortgage loan payments sold the loans to a third party without Educational Systems’ authorization and kept the proceeds, the complaint said. Education Systems FCU was one of 19 credit unions defrauded by CU National Mortgage, which closed this year after filing for bankruptcy in February. Its president, Michael McGrath, pleaded guilty in June to defrauding about $139.6 million from the credit unions and Fannie Mae. McGrath admitted to conspiring with others to fraudulently sell credit union loans and use the proceeds to finance U.S. Mortgage's operations and investments for himself and the company (News Now June 12).


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