LI credit unions seek to recover more than $50M
Suffolk Federal Credit Union in Medford has put its loss at $42 million. (Jan. 15, 2013) Credit: James Carbone
Two Long Island credit unions are awaiting key court rulings as they try to recover more than $50 million lost to a scheme by a New Jersey mortgage servicing company.
The 60,000-member Suffolk Federal Credit Union, headquartered in Medford, and the 16,600-member Sperry Associates Federal Credit Union, of Garden City Park, hired CU National Mortgage in 2003 and 2006, respectively, to service their mortgages. CU National, now defunct according to court papers, defrauded the two credit unions and more than 20 others nationwide of $140 million by selling mortgages the credit unions owned and pocketing the proceeds.
The former president of CU, Michael McGrath, of Montclair, N.J., is serving a 14-year sentence at the Coleman Federal Correction Institution in Florida for mail and wire fraud and money laundering in the scheme.
Credit union consultant Alan Theriault of Portland, Maine, says a credit union's capitalization is calculated as a ratio of net worth -- that is, what's left after liabilities are subtracted from assets -- to total assets. He said undercapitalization caused by a one-time event such as a fraud would not indicate an unhealthy credit union. "What really matters is, on an operational basis, are they earning money?" he said.
Sperry Associates Federal, with $288 million in assets, said in court papers that its loss was almost $9.5 million from the sale of 27 mortgages between 2004 and 2009.
Both credit unions are pursuing recoveries, and it's unclear what the ultimate losses will be. Suffolk referred questions to outside attorneys handling the matter, one of whom, Jessie F. Beeber of Manhattan, said in an email, "I can confirm that Suffolk is pursuing all avenues of recovery and that it has successfully recovered a significant portion of its losses as a result of those efforts." Suffolk obtained a settlement from Fannie Mae, whose amount he didn't disclose, and has sued the bankruptcy estate of CU National.
"Any unreimbursed loss resulting from the CU National fraud will not have any material effect on Suffolk's financial health or its members," Beeber wrote.
Sperry had only a $5-million bond and has received about a half-million dollars from Fannie, said Sperry's lead outside attorney, Kenneth J. Pagliughi of Scott A. Rosenberg Pc, in Garden City Park.
A spokesman for Fannie declined to comment.
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'It's personal to me' The law would require businesses to have proper state licensing, prove that their employees are paid and ban staff from living at the spas or sleeping there overnight. Repeat offenders could face penalties up to $25,000. NewsdayTV's Shari Einhorn has more.
