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| A federal credit union has filed a federal lawsuit alleging that more than $14 million in mortgages it owned were fraudulently sold to Fannie Mae by the third-party servicer — who kept the proceeds and also sold the servicing rights. A criminal investigation has been launched, though the servicer is now bankrupt.Picatinny Federal Credit Union filed the lawsuit on March 3 against U.S. Mortgage Corp. in U.S. Bankruptcy Court for the District of New Jersey. Also named as a defendant in the complaint is CU National Mortgage LLC, a subsidiary of Pinebrook, N.J.-based U.S. Mortgage.
Dover, N.J.-based Picatinny, which has 15,659 members, said it first entered a “credit union support services and correspondent mortgage lending agreement” with CU National in July 1999. Contracted services included loan production and mortgage servicing. A Dec. 31, 2008, trial balance from CU National allegedly reflected that 281 loans for $47 million were being serviced for Picatinny. When Picatinny messengers arrived to routinely pick up files on Jan. 27, they observed that police and other law enforcement officers had sealed off the building and were removing documents, the lawsuit says. The messenger left with no files that day. A Jan. 29 phone call from U.S. Mortgage Vice President Robert Tort falsely indicated that no criminal conduct had occurred at either company, according to the complaint. Tort allegedly claimed that a computer system glitch was the issue. “I want to emphasize that neither US Mortgage Corporation and CU National Mortgage are not targets of the investigation,” Tort was quoted in the complaint as saying. “We are open for business and are actively conducting business.” However, the plaintiff alleges that the U.S. Attorney for the District of New Jersey had already advised U.S. Mortgage’s chief executive officer about the fraudulent loan sales by CU National. U.S. Mortgage executive Phil Scialabba sent an e-mail message to a Picatinny executive on Jan. 30 that blamed errors in monthly remittance reports for the delay in monthly payments and reports, the plaintiff said. But Picatinny was tipped off that some of its loans may have been sold to Fannie Mae. “CU National falsely represented to Picatinny on its monthly reports that these loans were still in Picatinny’s portfolio,” the complaint says. After its requests for documentation were ignored, Picatinny declared CU National in breach of their agreement and demanded that all loan documents be turned over. But CU National reportedly responded by demanding a payment for the release of the files and claiming it was authorized to sell the servicing rights. By Feb. 5, Picatinny had had enough. It went directly to Fannie and confirmed that eight loans listed on its Dec. 31, 2008, trial balance for $2 million had in fact been assigned to the secondary lender. On Feb. 9, it received a letter from U.S. Mortgage advising it to immediately find an alternate mortgage production service provider. After demanding the loan servicing files, Picatinny was advised on Feb. 12 by CU National’s attorney that all of the files were being gathered. But the next day, the attorney back-tracked and said no further discussions would occur. Picatinny was referred to U.S. Mortgage’s criminal defense counsel. U.S. Mortgage finally came clean — issuing a letter acknowledging that instead of the 281 loans for $47 million reported on the trial balance, only 228 loans for $34 million were still on the books, the lawsuit says. “At this point in our investigation, we believe that 40 loans were sold without your authorization,” the letter reportedly said. “This it appears that a total of $9,491,133.85 in sales proceeds were diverted.” Picatinny claimed the numbers were more like 58 loans for $14 million. In addition to not paying the proceeds from the loan sales, $0.8 million in outstanding remittances for January and February remain unpaid. The remittances were supposed to be received by within 20 days of the end of each month. U.S. Mortgage’s letter went on to explain that it appeared duplicate servicing records kept the crime from being discovered. U.S. Mortgage ended operations in February and subsequently filed for bankruptcy. The company operated a net branch network. CU National, which handled mortgage originations for more than 30 credit unions, closed just prior to its parent’s collapse. Picatinny hopes its lawsuit will force the defendants to turn over the funds, deliver the loan files and account for funds being held that are tied to the loans in the servicing portfolio. In re: U.S. Mortgage Corp., Debtor. Picatinny Federal credit Union, Plaintiff, v. U.S. Mortgage Corp., and CU National Mortgage, LLC, a division of U.S. Mortgage Corp., Defendants. |
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