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CU System
U.S. Mortgage exec pleads guilty to defrauding CUs
NEWARK, N.J. (6/12/09)--The former president of U.S. Mortgage Corp. and its subsidiary, CU National Corp., pleaded guilty Thursday in a U.S. District Court in New Jersey to defrauding $139. 6 million from 19 credit unions, Fannie Mae and others. Michael McGrath, 46, pleaded guilty to one count of mail and wire fraud and one count of money laundering conspiracy, according to Ralph Marra, acting U.S. attorney for the District of New Jersey (Reuters June 11). Under a plea bargain, McGrath is expected to be sentenced to between 12 1/2 and 20 years in prison and to pay restitution to the victims, said prosecutors. U.S. District Judge Katharine Hayden set an Oct. 1 sentencing date. Until then, McGrath is confined to home under a $1 million bond. He 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 as well as investments for himself and the company. McGrath also admitted to diverting funds that should have been paid to credit unions for mortgage loans that were sold to Fannie Mae to help offset bad investments he made in mortgage-backed securities, prosecutors said. An attorney for McGrath, John Vazquez, said in a statement McGrath "extends his deepest sympathy" to the victims and will continue to work with authorities, Reuters reported. Court records indicated that McGrath posed as an executive for the credit unions, sold the mortgages to Fannie Mae for servicing without the credit unions' authorization, and pocketed the proceeds from the loans (News Now March 2). The mortgage companies, based in Pine Brook, N.J., filed for a Chapter 11 bankruptcy on Feb. 23 in Newark. The filing documents listed more than $200 million in debts to Fannie Mae and 19 credit unions, among others. The largest unsecured claims are 19 credit unions from New Jersey, New York, District of Columbia, Maryland, North Carolina, Florida and California. Nearly 300 creditors were listed in the bankruptcy petition's accompanying papers (News Now March 2). The mortgages are now being served by Midwest Loan Services and Symbionce Financial Solutions LLC.


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