Mortgage Daily Logo
mortgage news from industry experts

Firm’s President Sentenced for $136 mil in Secondary Fraud

The February 2009 collapse of CU National Mortgage LLC was followed one week later by the collapse of its parent company — a net branch operator. The former president of the parent has been sentenced for his role in the failure — allegedly selling $136 million in mortgages that were owned by other institutions to Fannie Mae.

CU National Mortgage notified its credit union clients in February 2009 that it had stopped processing loan originations. A lost warehouse line-of-credit and the loss of approval as a Fannie Mae seller-servicer were blamed for the demise at the time.

A week later, parent U.S. Mortgage Corp. issued a statement indicating it had gone out of business. The Pine Brook, N.J.-based firm, which marketed a “branch link” program where branches were charged a flat fee per loan, blamed “unforeseen circumstances” for its demise.

The next month, Picatinny Federal Credit Union filed a lawsuit in U.S. Bankruptcy Court for the District of New Jersey alleging that more than $14 million in mortgages it owned were fraudulently sold to Fannie by third-party servicer U.S. Mortgage — which kept the proceeds and also sold the servicing rights. After being confronted by Picatinny, U.S. Mortgage eventually 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.

By June 2009, U.S. Mortgage president and controlling shareholder Michael J. McGrath Jr. had pled guilty to one count of mail and wire fraud conspiracy in connection with the company’s collapse.

Turns out that McGrath had used $139 million of the funds for his personal expenses — including the purchase of 1 million shares of Fannie before it collapsed. He hid the fraud from customer credit unions by sending them fake statements.

The next guilty plea came in May 2010 from former U.S. Mortgage servicing manager Leroy Hayden, who pled guilty to one count of wire fraud conspiracy.

On Thursday, a 168-month prison sentence was handed down to McGrath, the Justice Department reported.

In addition, he faces three years of supervised release and the forfeiture of the proceeds of his crimes and $14 million of his assets that the government has seized or frozen.

Total losses in the case were originally estimated at $139 million, and McGrath is expected to be required to pay $136 million as part of an upcoming restitution order.

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming home closing documents have been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand new mortgage loan can be a difficult task, especially for first time homeowners. After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first mortgage...

Newsletter

Don’t worry, we don’t spam

calculate your monthly mortgage payment

Related Topics

Helpful Links

Daily mortgage rate trends

Best mortgage lenders

First-time homebuyers programs by state

Loan limits by state

Types of mortgages

APR vs interest rate

Understanding PMI

Related Posts

THE TRUSTED PROVIDER OF ACCURATE RATES AND FINANCIAL INFORMATION