Servicing Manager Pleads Guilty to Scheme that Bankrupted US Mortgage

Leroy Hayden has pleaded guilty to a criminal charge in connection with a $136 million fraud scheme that sent Pine Brook, New Jersey-based U.S. Mortgage Corp. and its subsidiary CU National Mortgage into bankruptcy in early 2009.

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Hayden held the position of servicing manager at U.S. Mortgage from 2004 to 2009. According to federal court documents, during that time he conspired with Michael J. McGrath, Jr. â€" then the president and controlling shareholder of the mortgage company â€" and several others to fraudulently sell Fannie Mae hundreds of loans belonging to various credit unions.

The Justice Department says he also provided numerous reports to credit unions falsely stating that loans that had been sold were still in the credit unions' portfolios, and falsified records, at McGrath's direction, to conceal these fraudulent sales. Hayden also admitted that he modified data in U.S. Mortgage's servicing system to help carry out the scheme.

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The pace of the fraudulent sales increased during 2008 and early 2009. On Jan. 27, 2009, dozens of law enforcement agents executed a search warrant at U.S. Mortgage and CU National's Pine Brook headquarters. In the following weeks, U.S. Mortgage and CU National commenced bankruptcy proceedings.

McGrath pleaded guilty on June 12, 2009, to several criminal and conspiracy charges, admitting that he hatched the scheme to prop up his company. The proceeds were used to fund U.S. Mortgage's operations, McGrath's personal investments, and investments he made on U.S. Mortgage's behalf. McGrath is scheduled to be sentenced on July 6, 2010. His crimes carry a maximum combined sentence of 30 years, but the Federal Bureau of Investigations (FBI) says McGrath will likely face an actual sentence of two years or less in federal prison.

The charge to which Hayden pleaded guilty carries a maximum penalty of five years in prison and a maximum fine of $250,000, or twice the amount of loss suffered by the victims of the conspiracy. His sentence is also expected to include restitution to the victims of the conspiracy, presently estimated at $136 million. His sentencing is scheduled for July 27, 2010.

U.S. Attorney Paul S. Fishman said in a statement, ""Frauds of this magnitude don't happen without someone to cook the books and push the paper. Leroy Hayden had to decide whether to go along with his boss' fraud or alert law enforcement to the scheme. Unfortunately, he made the criminal choice, and he answered for that choice today.""

This case was brought in coordination with President Barack Obama's Financial Fraud Enforcement Task Force, formed as an interagency effort to counter the increase in financial crimes and mortgage fraud.