Fannie Mae says “No need” for due diligence to prevent fraud
Federal courthouse in Newark, NJ
A New Jersey man was sentenced to 14 years in prison for running a $140 million scheme that defrauded credit unions on loans sold to Fannie Mae, and led to bankruptcy for his mortgage company.
Michael McGrath, 47, had pleaded guilty in June 2009 to two counts of conspiracy, including one to commit mail and wire fraud and one to commit money laundering. The defendant had run U.S. Mortgage Corp, a Pine Brook, New Jersey, lender and broker that filed for Chapter 11 protection in February 2009, and was a principal at its CU National unit serving credit unions.
At a hearing in the Newark, New Jersey federal court on Thursday, U.S. District Judge Katharine Hayden also…ordered restitution in a sum to be determined, but which prosecutors expect will exceed $136 million. McGrath also forfeited $14 million of previously seized or frozen assets.
Federal prosecutors said McGrath admitted to conspiring with others from January 2004 to January 2009 to fraudulently sell credit union loans, and use proceeds to finance U.S. Mortgage’s operations and investments for himself.
The Montclair, New Jersey resident also admitted to diverting funds that should have been paid to credit unions on mortgage loans he sold to Fannie Mae, which prosecutors said helped offset his own bad mortgage investments…
Four credit unions are still pursuing civil litigation against Fannie Mae to recover more than $64 million of loans they originated, and which they say were sold fraudulently to the mortgage financier via U.S. Mortgage, court records show.
… Fannie Mae said it had no duty to investigate, and that none of the “red flags” that Picatinny said should have been found at U.S. Mortgage involved loans it bought.
“Fannie Mae buys millions of notes each year,” the filing said. “Its business would grind to a halt if it had to investigate every signature on every note.”
Perish the thought that a government-insured corporation like Fannie Mae live up to the due diligence required of ethical banks and mortgage lending institutions.
The history of sleaze started downhill by Clinton and swelling into a torrent of bad loans and corruption under the incompetence and deceit of the Bush Administration obviously still infects the brains of Fannie Mae bureaucrats. Lack of standards and unwillingness to do your job is not excusable because “it takes too much time and money”. McGrath was able to steal tens of millions in part because Fannie Mae didn’t do their job.
Readjusting priorities, recalling standards dropped by the wayside of corporate greed are tasks still awaiting the green flag in American financial circles. Honesty was not made an out-of-date instruction set by its absence from American business software.
Can you elaborate on exactly how this “started downhill” under Clinton? Not doubting you, but that comment is not substantiated in your comment, and therefore appears editorial. I think readers would like a link to something that provides more detail on that.
skatterbrainz
February 25, 2011 at 1:52 pm
Admittedly the average geek doesn’t spend beaucoup time studying banking law. It’s almost as boring as Congressional press releases.
However, involved with work unrelated to banking, I bumped into early days of the deterioration of standards, relaxing of creditworthiness – and examples of fraud in mortgage loan practices not very long after publication of this cautionary article in the NY TIMES…in 1999:
http://tinyurl.com/4j9owy
I don’t characterize Clinton’s efforts as anything more than an attempt to make affordable home-ownership available to more Americans. But, sleazy practices followed almost immediately – and weren’t dealt with.
Follow that with Bush and Free Market crappola – and the bubble and crash became inevitable.
eideard
February 25, 2011 at 2:49 pm