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Fannie Mae sues insurers in CU Mortgage scam
WASHINGTON (10/22/10)--Fannie Mae has sued nine insurance companies, claiming they are responsible for losses on $131 million Fannie Mae paid for fraudulent credit union mortgage loans from U.S. Mortgage Corp. and its subsidiary Credit Union National Mortgage. The suit, filed Wednesday in a U.S. District Court for the District of Columbia, names as defendants: Great American Financial Resources Inc., the Travelers Cos., Chubb Group of Insurance Cos., Lloyd’s of London, CNA Insurance Co., HCC Insurance Holdings Inc.’s Professional Indemnity Agency, Zurich North America, Liberty Mutual Group and Fidelity & Deposit Co. of Maryland (Bloomberg BusinessWeek Oct. 20). The suit complained that under Financial Institution Bonds sold by the insurers, the insurers are responsible for the losses. The company faces $108 million in exposure, said the suit. The former president of U.S. Mortgage Corp., Michael J. McGrath Jr., pleaded guilty in June to one count of mail and wire fraud and one count of money laundering conspiracy stemming from the fraudulent sales of hundreds of mortgage loans to Fannie Mae without authorization and without paying the credit unions for the sales (News Now Aug. 12). McGrath admitted to conspiring with others from January 2004 to January 2009 to fraudulently sell credit union loans and use the proceeds to finance U.S. Mortgage's operations and investments for himself and his company. He also admitted to diverting funds that should have been paid to credit unions for mortgage loans sold without authorization to Fannie Mae to help offset bad investments in mortgage-backed securities (Reuters June 11, 2009). Both U.S. Mortgage and Credit Union National Mortgage, which were based in Pine Brook, N.J., filed for Chapter 11 bankruptcy during February 2009 in Newark. They listed more than $200 million in debts to Fannie Mae and the 28 credit unions. The bankruptcies have led to several lawsuits by credit unions seeking to recoup losses against Fannie Mae and against insurance companies.


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