Details have emerged in court documents showing why Pine Brook, N.J.-based U.S. Mortgage Corp. and its credit union division, CU National Mortgage, suddenly shut down last month.Howard Brownstein, principal in Nachman Hays Brownstein Inc., a crisis management firm, confirmed to Credit Union Times that one credit union was holding out on NHB's attempts to sell the entire loan portfolio; however, he declined to name the credit union.But Court documents revealed the dissenting client: the $247 million Picatinny Federal Credit Union of Dover, N.J.On Feb. 23, U.S. Mortgage Corp. filed Chapter 11 bankruptcy in U.S. Bankruptcy Court in Newark, N.J. A few days later, NHB, which is managing U.S. Mortgage Corp's affairs, issued a press release announcing the bankruptcy and blaming among other things, "a credit union [that] insisted upon advising its members to stop sending payments."Picatinny's bankruptcy objection documents detail fraud allegedly committed by U.S. Mortgage-to the tune of more than $110 million-and the resulting tug of war that ensued for the credit union's loan portfolio.According to court documents, Picatinny said it learned in late January that U.S. Mortgage had sold 58 of its mortgages, worth $14 million, to Fannie Mae without the credit union's knowledge or approval. The credit union said it didn't receive any proceeds from those sales.Brownstein confirmed what he called "recordkeeping irregularities" at U.S. Mortgage, saying a federal search warrant was served on the company on Jan. 27."At that point, based on what we learned, the company determined it had to cease operating in terms of closing loans," he said. He added that NHB first identified loans in the pipeline that were under interest rate lock agreements but hadn't yet closed so the referring credit unions could assist the borrowing members.Upon discovering the alleged fraud, Picatinny froze its U.S. Mortgage accounts and immediately demanded the return of its loan files so it could search for a new loan servicer. However, Picatinny charged that U.S. Mortgage refused to return the files on the basis that it was attempting to sell the loan servicing rights to another servicer.Brownstein confirmed that NHB was attempting to sell U.S. Mortgage's entire portfolio, saying, "We have reason to believe that we can get a better deal than credit unions could get individually because we have such a big volume advantage." However, he added that it was within credit union clients' rights to refuse the group deal and negotiate with NHB individually.On Feb. 20, Picatinny went to New Jersey Superior Court to seek a temporary restraining order to prevent the sale of its servicing rights and require the return of its loan files. Before that request was heard in court, U.S. Mortgage filed for bankruptcy.CU National Mortgage had approximately 120 credit union clients, Brownstein said, and as many as 30 could be victims of fraud."They have been the most active in interfacing with us," he said of those affected.Washington-based attorney Bruce Jolly, who has been working as a liaison between U.S. Mortgage and affected credit unions, said the bankruptcy filing created a "substantially different process" in the effort to resolve the issue.Jolly said ownership disputes between Fannie Mae and credit unions could result in litigation, but he's hopeful the parties involved will reach a conclusion themselves."I am very much in the credit unions' camp on this," Jolly said. "We need a resolution. My greatest concern is that these loans will remain in limbo for an unreasonable period of time."He added that although the bankruptcy filing required a massive shift in strategy, one good thing about the bankruptcy is that it could result in a comparatively quick resolution.The court listed 20 of the largest creditors laying claims against U.S. Mortgage. At the top is Fannie Mae, owed nearly $100 million. The $760 million Suffolk Federal Credit Union is next on the list at $33.7 million owed. The $396 million Proponent Federal Credit Union of Nutley, N.J., is owed $21.6 million, followed by Picatinny FCU with $9.5 million in unsecured claims, the $319 million Sperry Associates FCU with $9.2 million, and the $148 million Treasury Department FCU with $8.7 million.No individual charges have been filed and no employee names have been listed in court documents filed so far. Brownstein said he couldn't discuss the details but added that he's confident the current FBI investigation will result in individual charges.–[email protected]