Former CU National Mortgage President Michael McGrath revealed a complex scheme in court yesterday that allowed him to fraudulently sell unauthorized credit union mortgages to Fannie Mae to cover his investment losses.
McGrath admitted to directing his subordinates at parent company U.S. Mortgage to assign loans from credit unions to his company, and then on to Fannie Mae, without the credit unions' knowledge or consent. Furthermore, McGrath sold some of the loans to another victim, a New Jersey-based institution.
To conceal the scheme, McGrath directed his servicing manager to generate reports for victim credit unions falsely stating that loans he sold to Fannie Mae were still in their portfolios, and also modify data in U.S. Mortgage's servicing system.
He also directed his chief financial officer to pay off or make monthly payments to the credit unions for the fraudulently sold loans and falsify other documents.
McGrath spent some of the stolen funds on one million shares of Fannie Mae common stock, millions of shares of common and preferred stock of a New Orleans-based company, and a Hoboken, N.J. property. McGrath conceded that approximately $13 million in funds that the government has frozen or seized to date were involved in, derived from or traceable to his offenses.
In total, the scheme netted $139 million for the now bust mortgage vendor.
