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Fannie Mae settles CU mortgage lawsuits
WASHINGTON (8/31/11)--Fannie Mae has settled a pair of lawsuits brought by Medford, N.Y.'s Suffolk FCU and Dover, N.J.-based Picatinny FCU after those credit unions sought compensation for mortgages that were improperly sold to the government-sponsored mortgage firm. The terms of the settlements were not disclosed. Fannie Mae is also involved in separate cases brought by Garden City Park, N.Y.'s Sperry Associates FCU and Nutley, N.J.'s Proponent FCU, and those cases are still being litigated. Both cases are still in the discovery phase of compiling information. These and over 20 credit unions incurred a combined $160 million in losses when mortgage servicer CU National Mortgage fraudulently sold 189 of their mortgage loans to Fannie Mae and pocketed the money. The fraudulent sales were made between 2004 and 2009. Suffolk, Sperry Associates and Proponent are seeking a combined $60 million in damages from Fannie Mae. CU National Mortgage sold 58 of Picatinny’s mortgages, resulting in $14 million in losses, and Suffolk lost nearly $42.4 million when its mortgages were sold to Fannie Mae. CU National Mortgage and its parent U.S. Mortgage, based in Pine Brook, N.J., listed more than $200 million in debts to Fannie Mae and 19 credit unions when it filed for Chapter 11 bankruptcy in early 2009. Michael McGrath, president of the former mortgage companies, pleaded guilty in 2009 to stealing $139.6 million from 28 credit unions, and is currently serving a 14 year sentence. McGrath fraudulently conveyed the mortgages to Fannie Mae by forging allonges that he endorsed in his own name. His endorsement also included the initials "AVP," which may have been taken to mean associate vice president. An “allonge” is an attachment to a note that a party can add on for “endorsements,” such as signatures for transferring the note. One can make endorsements on the note itself, but McGrath used allonges instead to help hide his fraud. While CU National Mortgage's non-fraudulent transfers to Fannie Mae were made using Fannie Mae's electronic mortgage note transfer system, the fraudulent transfers were made using paper copies, with the attached allonges. The credit unions and Fannie Mae accused each other of failing to sufficiently scrutinize McGrath before the fraudulent mortgage transactions were made. Fannie Mae claimed that-–because of its size-–it was “commercially reasonable” for Fannie Mae not to conduct due diligence regarding the fraudulent transactions, and also that the credit unions should have warned the mortgage firm that McGrath, who was a member of a Fannie Mae advisory panel, was not an associate vice president of over two dozen different credit unions.


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