Mr. Edward DeMarco
Acting Director
Federal Housing Finance Agency
1700 G Street NW
Washington, D.C. 20551

Dear Acting Director DeMarco:

I am writing to request additional information about $150 million in fees that Fannie Mae and Freddie Mac charged mortgage servicing companies in 2010 for failing to conduct foreclosures quickly enough to meet federally imposed timelines. I am concerned that these penalties, at least some of which were ordered by the Federal Housing Finance Agency (FHFA), may have contributed to widespread abuses by mortgage servicing companies and law firms attempting to meet arbitrary deadlines to expedite foreclosures.

Evidence of Abuses Prior to 2010

On February 25, 2011,1 launched a major investigation into abuses and illegal activities
by mortgage servicing companies, including wrongful foreclosures, deficient recordkeeping,
inflated fees, and fraud in lending. As part of this investigation, I wrote to the FHFA Inspector
General requesting an investigation into “widespread allegations of abuse by private attorneys
and law firms hired to process foreclosures as part of the ‘Retained Attorney Network’
established by Fannie Mae.”1

On September 30, 2011, the Inspector General issued a report in response to my request
concluding that “there were multiple indicators of foreclosure abuse risk prior to 2010 that could
have led FHFA to identify and act earlier on the issue.” According to the Inspector General,
these warnings included “consumer complaints alleging improper foreclosures; contemporaneous
media reports about foreclosure abuses by Fannie Mae’s law firms; and public court filings in
Florida and elsewhere highlighting such abuses.”2

In one instance, a review commissioned by Fannie Mae found that “foreclosure attorneys
in Florida are routinely filing false pleadings and affidavits.” Similarly, in June 2010, officials
from FHFA’s Office of Conservatorship Operations performed a two-day field visit to Florida,
after which they noted:

[Servicers, attorneys, and other supporting personnel were overloaded with the volume
of foreclosures, the average timeline for foreclosures had increased from 150 to 400 days,
documentation problems were evident, and law firms (referred to as “foreclosure mills”)
were not devoting the time necessary to their cases due to Fannie Mae’s flat fee structure
and volume-based processing model.3

Despite evidence of widespread problems among foreclosure law firms retained by
Fannie Mae and Freddie Mac, the Inspector General’s report concluded that FHFA “did not
begin to act on foreclosure abuse issues involving Fannie Mae’s RAN until mid-2010.” The
Inspector General recommended that FHFA review why it failed to heed these warnings sooner,
implement comprehensive procedures to prevent these abuses in the future, and address “poor
performance” by law firms that have contractual relationships with Fannie Mae and Freddie
Mac. FHFA agreed with all of these recommendations.4

Penalties for Slow Foreclosures

In addition to finding that there were multiple indicators of foreclosure abuse prior to
2010, the Inspector General reported that during this same timeframe in 2010, FHFA “directed
Fannie Mae to impose compensatory fees against the servicers for violating foreclosure timeline
limits.”5

In fact, FHFA General Counsel Alfred M. Pollard disclosed in a letter to me on
November 1, 2011, that Fannie Mae and Freddie Mac assessed penalties totaling approximately
$150 million in 2010. He wrote:

To date, the top ten servicers account for the bulk of the fees due; the total amount for all
servicers, after approving appeals and corrections, is approximately $150 million dollars
for 2010.6

Mr. Pollard also described the methodology for calculating these penalties. He
explained:

Fees are assessed based on each Enterprise’s specific allowable foreclosure timelines for
individual states as published in their Seller/Servicer Guides. Each Enterprise assesses
the servicers a per day fee—approximately $30 a day—for each day that the servicer
exceeds the established timeline.7

The size and timing of these penalties raise serious questions about whether FHFA may
be more interested in expediting foreclosures to clear its books than protecting the rights of
homeowners.

Request for Information

On October 3, 2011,1 wrote to you to inquire about the extent of penalties imposed
against mortgage servicers that failed to meet federally imposed timelines to conduct
foreclosures. Specifically, I requested that you “provide a list of all servicers that have been
assessed compensatory fees, identify the total amount of fees assessed against each servicer,
identify the reasons these fees were assessed, and identify whether the fees have been paid in
f u l l . ” 8

Although the letter from Mr. Pollard disclosed that the total amount of these penalties for
2010 was $150 million, it did not provide the specific information I requested, including the
amount of fees charged to each mortgage servicing company. For these reasons, I request that
you provide the following information:

(1) a list of all servicers that have been assessed compensatory fees;
(2) the total amount of fees assessed against each servicer;
(3) the reasons these fees were assessed against each servicer;
(4) whether each servicer assessed compensatory fees has paid the assessed fees in
full; and
(5) if a servicer has not yet paid the assessed fees in full, the expected date by which
the fees will be paid in full.

I request that you provide this information by November 30, 2011. I also request that you
provide the information requested above regarding compensatory fees assessed against mortgage
servicers in 2011 when that information becomes available. Thank you for your consideration of
this request.

Sincerely,

Elihah E. Cummings

Ranking Member

 

cc: The Honorable Darrell E. Issa, Chairman
Committee on Oversight and Government Reform

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© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

by PAUL JACKSON

For the law firms that manage and process foreclosures on behalf of investors and banking institutions, what’s a fair legal fee? What’s a fair filing fee? Should fees to outsourcers be prohibited? And just how much money should it really cost to process a foreclosure?

As I write this, the answer to these and other questions are being fought out in the trenches, in an out-of-sight but increasingly heated battle involving Fannie Mae and Freddie Mac, the law firms that specialize in creditor’s rights, default industry service providers, and various private equity interests.

It’s a complex fight that many say will ultimately shape the way U.S. mortgages are serviced over the course of the next decade — and perhaps beyond. It’s also a debate that promises to spill over into how loans are originated and priced.

“No aspect of the U.S. mortgage business will go untouched by the outcome of this current debate,” said one attorney I spoke with, on condition of anonymity. “This is the single most important issue facing mortgage markets today, and will even determine how securities are structured in the future.”

How foreclosures are managed

Typically, a foreclosure involves legal and court filing fees — it is, after all, a legal process involving the forced transfer of a property from a non-paying borrower to secured lender. But the foreclosure process also typically involves a host of other associated fees, including necessary title searches, potential property insurance, homeowner’s association dues, property maintenance and repair, and much more.

Many of these fees are ultimately tacked onto the “past due” amounts tied to a delinquent borrower — and done so legally. Much like when a credit card becomes past due and the interest rate kicks into high oblivion, consumers looking to catch up on their delinquent mortgage payments must also make up the difference in additional fees in order to successfully do so.

Legal fees in the foreclosure business, however, aren’t what you might think. Instead of billing hourly for most work, as most attorneys in other fields would do, attorneys that specialize in processing foreclosures are paid on a flat-fee basis, using pre-determined fee schedules.

Thanks to the market-making power of the GSEs, Fannie Mae and Freddie Mac — both of whom publish allowable fee schedules for every imaginable legal filing and process in the foreclosure repertoire — the entire foreclosure process has been reduced to a set of flat fees.

And not even negotiated fees, at that. For firms that operate in the field of foreclosure management, the GSE allowable fees amount to a take-it-or-leave-it menu of prices.

“For us, it doesn’t matter who the client is, even if it isn’t Fannie or Freddie,” said one attorney I spoke with, under condition of anonymity. “We know we’re only going to be able to claim whatever that flat fee schedule they set says we can claim, since other investors tend to employ whatever the GSE fee caps are.”

Fannie and Freddie as housing HMOs? In the foreclosure business, that’s pretty much what it amounts to.

But beyond determining the legal fee schedule for much of the multi-billion dollar default services market, the GSEs also largely determine who gets their own foreclosure work. Both Fannie and Freddie maintain networks of law firms called “designated counsel” or “approved counsel” in key states marked with significant foreclosure volume — and they either strongly suggest or require that any servicers managing a Fannie or Freddie loan in foreclosure refer any needed legal work to their approved legal counsel.

Each state will have numerous designated counsel — sometimes as many as five law firms — but in practice, attorneys say, two to three firms end up with the lion’s share of each state’s foreclosure work. In states hit hard by the housing downturn and foreclosure surge, like Florida, the amount of work can be substantial.

“The GSEs can force a servicer to use their designated counsel, especially if timeline performance in foreclosure management is out of some set boundary,” said one servicing executive at a large bank, who asked to remain anonymous. “It’s usually easiest to simply use their counsel on their loans, even if we don’t see that firm as best-in-class.”

With the vast majority of the mortgage market now running through the GSEs, and much of what’s left of the private market following the guidelines Fannie and Freddie establish, it should come as no surprise to find that a few law firms in each state end up with the majority of the foreclosure work, sources say.

The rise of the ‘foreclosure mills’

Being designated as approved counsel by Fannie Mae and/or Freddie Mac does carry risk. Just ask Florida’s David Stern, who has seen his burgeoning operation pejoratively branded a ‘foreclosure mill’ by consumer groups, dragged through the press for both alleged and real consumer misdeeds, and facing numerous investor lawsuits surrounding the operation of DJSP Enterprises, Inc. (DJSP: 3.22 -1.23%) — the publicly-traded processing company tied to the law firm.

While Stern’s operation may win the award for ‘most susceptible to negative publicity,’ how the law firm operates is far from unique in the foreclosure industry.

Continue reading…Housing Wire

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.