Suffolk claims U.S. Mortgage Corp. and its CEO Michael McGrath, along with Ron Carti, another U.S. Mortgage employee, serviced its mortgage loans, but “signed loan transfer documents that falsely identified themselves as executives of Suffolk.”
Suffolk claims McGrath then sold the loans to Fannie Mae, which never checked his authority to execute such documents on behalf of the credit union.
“Fannie Mae ignored obvious signs of falsified financial statements, payment irregularities, commingling of funds, and dangerously speculative securities trading, all of which pointed to a situation ripe for fraud,” Suffolk claims.
Even after McGrath pleaded guilty to stealing the mortgages, Suffolk says, Fannie Mae refused to return them, claiming it bought the loans fair and square in good faith.
But the credit union insists that the law states, “purchasers of negotiable instruments who stick their heads in the sand cannot claim ownership of stolen property.”
Suffolk claims McGrath and Carti had falsely claimed to be officers from 28 companies, in multiple states, and that Fannie Mac failed to notice.
Suffolk claims that because of its size it needs to sell a portion of its mortgage loans to the secondary mortgage market, and Fannie Mae controlled the market for these loans by purchasing loans only through “authorized” sellers.
Not only was U.S. Mortgage an authorized seller, but McGrath was a major shareholder in Fannie Mae and sat on its Customer Advisory Board, according to the complaint.
“Fannie Mae’s zeal to increase business through U.S. Mortgage, however, came at a great cost, blinding Fannie Mae to a series of red flags that U.S. Mortgage was in serious financial trouble,” the credit union claims.
Fannie Mae routinely increased U.S. Mortgage’s securities trading limits, and by the time McGrath’s thefts had been discovered, U.S. Mortgage was bankrupt, according to the complaint.
Suffolk says it discovered the scam after the FBI “raided U.S. Mortgage’s offices and exposed the fraud” in 2009.
The credit union demands $42 million from Fannie Mae, the value of the allegedly stolen mortgages. It alleges conversion and negligence. It is represented by Gary Meyerhoff with Sonnenschein Nath & Rosenthal of Manhattan.