By Karen Freifeld

NEW YORK (Reuters) - Abacus Federal Savings Bank, which caters to the Chinese-American community in New York, New Jersey and Pennsylvania, was found not guilty on Thursday of all charges related to the sale of allegedly fraudulent mortgages to Fannie Mae.

A jury in New York state court in Manhattan acquitted the bank of mortgage fraud and falsifying business records after a three-month trial, prosecutors and defense counsel said. A day earlier, the jury acquitted the bank of conspiracy and grand larceny charges.

The jury also found two executives at the bank not guilty of charges against them on Wednesday. The executives and the bank each faced about 80 counts.

Abacus is believed to be the only bank to face a criminal trial in the United States on charges of mortgage fraud in the run-up to the 2008 financial crisis.

Unlike other banks, however, Abacus' loans did not have a high default rate. Its loans are still performing, with monthly mortgage payments being made by borrowers.

"Right case, wrong bank," Abacus attorney Kevin Puvalowski told Reuters after the verdict.

Joan Vollero, a spokeswoman for the Manhattan District Attorney's office that prosecuted the case, noted that eight people from the bank's loan department had pleaded guilty.

"While today's verdict is disappointing, we are confident that, as a result of this prosecution and enhanced supervision," the fraud has been terminated, Vollero said in a statement.

"The unanswered question is why should this small minority bank be singled out for prosecution relating to the financial crisis of 2008," Thomas Sung, founder and chief executive officer of Abacus, said in a statement after the verdict.

The charges against Abacus and its executives stemmed from the sale of hundreds of millions of dollars worth of allegedly fraudulent loans to Fannie Mae between 2005 and 2010.

Prosecutors claimed the defective loans misrepresented the applicants' credit, employment, income and source of down payments.

"We can't discover the falsity underlying these loan documents and then sit around, waiting for a mortgage awarded based on them to stop performing," Manhattan Assistant District Attorney Rachel Hochhauser told the jury in her summations.

But in Abacus's closing arguments, Puvalowski called the state's case "a bizarro prosecution."

The bank has one of the lowest default rates in the country, the attorney said, citing a rate of about 0.3 percent versus a nationwide average of 6.6 percent, 20 times higher.

Yiu Wah Wong, the bank's chief credit officer, and Wai Hung "Raymond" Tam, the loan origination supervisor, were both acquitted on Wednesday.

(Fixes typo in 6th paragraph)

(Editing by Jeffrey Benkoe)