Defrauded Credit Unions Want Their Money Back
More than a dozen credit unions are launching a lobbying offensive against Fannie Mae, asking Congress to cut off funds to the government-sponsored enterprise until $125 million in stolen mortgages is returned.
Assets from nearly 30 credit unions have been tied up since the beginning of the year, when federal authorities alerted credit unions that the president of U.S. Mortgage had fraudulently sold their mortgages to Fannie Mae in order to cover losses his company was facing on mortgage-backed securities, and later to fund his day-trading habit.
Michael McGrath, president of U.S. Mortgage Corp., pleaded guilty to selling off millions of dollars in mortgages to Fannie Mae that his company held on behalf of credit unions. McGrath agreed to forfeit $13 million of his own assets, leaving the remaining $125 million.
The Federal Housing Finance Agency has encouraged the credit unions and Fannie Mae to resolve the dispute for months.
“FHFA has been monitoring the situation and encourage the parties to attempt to seek a solution,— said Stefanie Mullin, a spokeswoman for the agency.
So far, they have not come to an agreement.
Some unions, such as Picatinny Federal Credit Union, which has some of the biggest exposure to mortgages sold to Fannie Mae, have filed suit against Fannie Mae. Picatinny FCU is trying to recover $14 million in mortgages that were sold to the government-sponsored enterprise.
“The bottom line is Fannie Mae has contributed to this because they did not do any due diligence,— said Alfred Scipio, president and CEO of the Treasury Department Federal Credit Union. “Right now they are receiving taxpayer dollars, some of it from the 510,000 [credit union members] who are going to be negatively impacted.—
Scipio is co-chairman of the ad hoc coalition of 16 credit unions that have banded together to fight Fannie Mae. The Treasury Department FCU had $8.8 million of its $160 million in assets sold without its knowledge.
McGrath’s U.S. Mortgage had been a seller to Fannie Mae since 1996 and had sold the lender more than 2,500 credit union loans. There have been 542 disputed loans come to the fore, and 139 of those were authorized notes for which McGrath did not send the proceeds to the credit union.
“This is really an issue about what is right for the marketplace,— Scipio said. “Clearly if you buy stolen merchandise, you need to return it.—
“Those claims don’t go to actual requirements to being a holder in due course,— the source said. “It’s coming from the fact that they feel victimized. Obviously when you feel victimized, you’re looking for a place to place blame.—
Since Fannie Mae bought the loans without knowledge of McGrath’s fraud, it was also victimized by the fraud, according to a source familiar with the discussions.
Fannie Mae has been fighting in court against having to return the $125 million, arguing that the institution is the holder in due course, which doesn’t make the lender responsible for the fraud.
Fannie Mae declined to comment. The government-sponsored enterprise stopped all lobbying activity after going into a conservatorship in September 2008.
The coalition of credit unions is targeting its members’ local representatives as well as the House Financial Service Committee and the Senate Banking, Housing and Urban Affairs Committee to resolve the issue. The group has hired public affairs firm FD to get its message out. Jones Walker’s Palmer Hamilton and Sabiston Consultants’ Norma Jane Sabiston are leading the lobbying effort.
The Treasury Department FCU is not the only institution with federal employees affected by the mortgage theft.
Energy Federal Credit Union, whose members include employees in the Energy Department and the U.S. Nuclear Regulatory Commission, is also facing losses of $3.2 million. The credit union has less than $100 million in assets.
Ronald Roy, president and CEO of Energy FCU, wrote Treasury Secretary Timothy Geithner at the end of September asking for assistance in getting the funds returned because the credit union could otherwise face the risk of being merged or liquidated.
“Our destiny, and those of the other credit unions should not be left in the hands of Fannie Mae, which has conducted financial transactions without appropriate oversight and due diligence to prevent such fraud by authorized sellers to Fannie Mae,— Roy wrote.