Boy, you have to love the way beleaguered companies strain to create the impression that unfavorable revelations are “mischaracterizations.” And Lender Processing Services certainly has its back to the wall. Its stock traded down 5% on Friday and another 8% today before it halted just prior to the close of trading on Monday. (for more detail on LPS’s business model, see our related post today).
Recall that over the weekend, the site 4ClosureFraud disclosed a sheet listing services offered by LPS through its subsidiary, DocX, which as we discussed in some length, included “creating,” meaning fabricating, documents out of whole cloth for the purposes of allowing foreclosures to proceed.
LPS provided a press release attempting to rebut some of the concerns, but what was revealing was how much was tacitly admitted. The first part of the press release focused on the creation of improper affidavits, which of the problems facing LPS is comparatively minor (it’s a much bigger headache for the servicers). Here LPS claims it stopped signing affidavits for clients (meaning servicers) in 2008, and when it did so, “affidavits were prepared and provided by the lenders’ or servicers’ attorneys. These affidavits were then executed by LPS consistent with industry practice.”
In other words, there is no denial that there might have been improprieties. If there were, LPS is basically claiming it was just operating at the behest of the servicer. In other words, it just threw its clients under the bus.
The more troubling charges, the document fabrications are addressed in the second half of the press release and are equally artful. It contends that the subsidiary, DocX, was “small.” Well yes, because LPS charged bupkis for this activity; small in revenue terms does not mean small in terms of activity levels. This is an admission of the questionable practice; LPS is trying to minimize its significance. It was only in the business in 2008 and 2009. And it served “only” two lender/servicers (what, like JP Morgan and Wells Fargo?)
And you have to love this part:
During its operation, when lenders/servicers or their attorneys requested that Docx prepare an assignment of mortgage, the lenders/servicers or their attorneys provided the necessary borrower information, which was downloaded by Docx employees into a pre-approved document template. The document was then printed and either signed by the lender/servicer or Docx, pursuant to corporate resolution. Docx did not determine whether these documents were then used in a court proceeding – those decisions were made solely by the lenders/servicers or their attorneys.
In other words, speak no evil, hear no evil, see no evil.
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And yet… the Robo-signers are on record for saying exactly the opposite: “The facts in the documents were verified by our document contractor, Lender Processing Services”
and around and around and around we go…
“And it served “only” two lender/servicers.”
And Deutsche Bank National Trust Company is one of them (speaking from personal experience). Of course, Deutsche is just a small European outfit, right?
“Docx did not determine whether these documents were then used in a court proceeding – those decisions were made solely by the lenders/servicers or their attorneys” whowere equally free to hang them as wallpaper in their corporate washrooms and janitor closets, so far as we were concerned.
This might be a genuine whocooddanoed situation here.
Fascinating. It looks like LPS hired themselves a good crisis management PR specialist.
The trick here is providing a message that speaks to each of your company’s constituencies: employees, shareholders, vendors, customers and the community at large (including the court system). The press release largely succeeds, but the parsing is made fairly obvious by the different timeframes used in the second and third paragraphs (they stopped signing affidavits in September 2008 but provided document preparation services through 2009). A good lawyer will be able to make a lot of hay out the shading of the truth.
All in all, it’s pretty clear that this press release was primarily intended to stop the slide in LPS’ stock price, but it is not clear that this will work. Karl Denninger has some interesting observations about short trades executed hours before the slide started.
http://market-ticker.org/akcs-www?post=168205
Perhaps when documentgate fully unravels, this country is going to get serious about prosecuting and throwing a few thousand bankers in jail. Maybe we can issue playing cards for them like our soldiers did for high value targets in Iraq.
Like the Ace of Spades for hammering Hank Paulson, maybe the King of Clubs for Angelo Mozilo, maybe the Queen of Hearts for Barney Frank and other cards for a few other cozy politicians.
The best part about documentgate is the potential to shut down all sales- even non REO properties as title insurers say show us the real owners and lien holders- as they try to unravel the mystery of who bought and who owns all of these CDO’s sold all over the world. Great stuff-truly a mess. Moratorium from the lame duckers looms large.
As the fraud scandal takes a life of its own we can see our bureaucrats and politicians get in the fray to “protect” our financial system. Net result taxpayers on the hook and laws changed to make what was illegal now legal.
Welcome to the kleptocracy on steroids.
Totally agree with you ab initio on the final outcome. we will make up the difference.
LPS should have just said, “We’re only in it for the money”
I am way less optimistic. Our financial system proved itself very resilient against outside protestation. I tend to think that if the choice is between exposing the whole scandal (and sending many people to jail as well as huge losses to lender) and do bubkes, bubkes will win in a landslide.
Do you really believe that the corrupt courts and the dysfunction Obama administration will resist the lenders and their servers?
So, the service these guys provide is forgery not perjury. And forgery is only a small, and not particularly important, part of what they do. Somehow, euphemisms like ‘file re-creation’ or ‘final solution’ wear thin.
Back in the 1970s the U.S. Supreme Court, in a case called Acme Supermarkets, basically applied the Yamashita precedent in an American corporate context (i.e., that very senior management could be held criminally liable for the minor criminal offenses committed by the organization at an operating level). Unlike Yamashita, who was hanged for war crimes committed in the Phillipines while he was in Japan, the Acme guy paid a $50 fine for a health code violation, but it was the principle of the thing.
Maybe it is time to begin holding very senior management figures liable for the offenses committed at the operating level. It’s obvious that the appropriate procedures and safeguards were not in place and, at Bank of America, Chase and GMAC still weren’t as recently as two weeks ago. Personally, I’d far rather see this addressed with implacable criminal proceedings rather than more tawdry, class action nonsense.
I think the bottom line is that the entities with huge losses on MBS holdings will soon realize that the securitization process “lost” the loan papers so that the obvious toxicity of the MBS cannot be determined by courts during clawback proceedings. The lack of a paper trail conceals the original crime of knowingly selling AAA rated junk.
What’s interesting is the company owes Chase $500mm of their $1.2billion total…they also have $330 million on deposit with wells and chase in the form of escrow funds. This is fun….
This afternoon LPS announced that they will hold a conference call on Wednesday, October 6, 2010 at 8:00 am EDT to discuss the press release issued on October 4, 2010. Details regarding the call are available here:
http://finance.yahoo.com/news/Lender-Processing-Services-prnews-1665833133.html?x=0&.v=1
Elizabeth Warren was just interviewed on PBS Newshour. Missed the first feed, her segment was in the 0:15-0:30 minute portion of the hour. Second feed starts 7 pm on east coast.