We’ve discussed Lender Processing Services, which serves as an outsourcer to the mortgage servicing industry, primarily via a software platform, as well as other companies with similar business models.
One of LPS’s major activities is acting as a middleman in the foreclosure process, reportedly hiring and firing foreclosure mills in the name of servicers. LPS is under fire in two national class action lawsuits for alleged impermissible fee splitting with foreclosure firms. A recent story in Reuters confirmed details we supplied in late October as to how LPS works with foreclosure mills, in particular, the very tight control it exercises over them.
Fannie Mae issued a directive today which effectively eliminates the payment of certain types of fees to firms like LPS. In LPS’s Default Services Group, which accounts for nearly half the firm’s revenues. Per Housing Wire (hat tip Lisa Epstein):
Attorneys and trustees assigned a Fannie Mae mortgage loan can no longer be charged any technology or electronic invoice submission fees by the servicer or a third-party vendor used by the servicer effective Feb. 1, 2011.
Fannie Mae made the announcement Monday. On Sept. 1, Fannie limited the amount vendors could charge attorneys for technology and invoicing fees to $25 per loan and $10 for submitting electronic invoices. It also prohibited any servicer from requiring or encouraging attorneys to use specified vendors.
But for any referral on or after Feb. 1, “attorneys and trustees handling Fannie Mae mortgages loans may no longer directly or indirectly be charged any technology or electronic invoice submission fees by the servicer or any outsourcing companies or third-party vendors utilized by the servicer,” according to the announcement…
But for foreclosure or bankruptcy referrals on or after that same date, Fannie said it would reimburse servicers for those technology and electronic invoice submission fees up to the limit set in September….
Servicers are prohibited from entering into an arrangement with any outsourcing company in which it receives a benefit, such as lower charges, for referring a foreclosure matter on a Fannie Mae loan to a particular attorney or trustee.
“Outsourcing companies or third party vendors must not be permitted to directly or indirectly select (or influence the selection of) the attorneys and trustees to be used on Fannie Mae mortgage loans,” according to the announcement.
Notice that this change is more in the line of adding insult to injury; the bigger hit to LPS and its brethren was the earlier reduction of technology fees to $25, when thy had been charging considerably more. We described the fee structure :
To illustrate the degree of control LPS exercises over its network: we have been told by an LPS insider that the software that LPS uses to coordinate with all law firms in its network, LPS Desktop, incorporates a scoring system called 3/3/30. When LPS sends a referral on a foreclosure, the referee is expected to respond in three minutes. When it accepts the referral, it is auto debited (ACH or credit card). In three days, it is expected to have filed the first motion required in pursing the case, and it is expected to have resolved the case in 30 days. Firms are graded according to their ability to meet these time parameters in a green/yellow/red system. Firms that get a red grade are given a certain amount of time to improve their results or they are kicked out of the network.
The cases describe the many fees between LPS and the network law firms. The terms of standard agreements provide for the payment of $150 at the time of referral (the first 3 in the 3/3/30 standard above). Network firms allegedly pay other fees as various milestones are reached, and these are couched as fees for technology, administrative review, document execution, and other legitimate-sounding services. We’ve also been told separately by LPS insiders that LPS and network law firms split the fee for the motion for relief of stay in bankruptcy court, as well as the fee on a small filing called a proof of claim.
The other interesting part is the statement of intent, that the outsourced vendors are not to exercise influence over attorney selection. Query how that can take place, given that a big part of LPS’s selling proposition is that it makes sure certain deadlines are met, and its method of assuring compliance is the threat of redirecting business. Another insider, a recent attorney in a foreclosure mill, sent a redacted copy of an LPS scorecard with this comment:
Just as some background, I would receive these every day and my entire job revolved around making sure the APR (attorney performance review) remained in the green (if it fell to yellow or heaven forbid the red I would have to explain to my boss how I would get it back into green etc.). The reason it had to stay in the green was because the better the score the more files the firm would receive from the different clients and as a result my bosses would make more money.
This development suggests that Fannie is taking the allegations in the two class actions lawsuits and the various media reports seriously. It also begs the question as to why servicers have not followed suit (the answer, in part, is that they are more dependent on LPS than the GSEs are). By any right, they should be every bit as concerned about the issue of improper fee splitting and influence, as well as the possibility that LPS and other outsourcers using a similar business model ares using their position as the de facto overseer of foreclosure attorneys to direct business to its other units, such as its REO services business (which organizes property management services on foreclosed homes).
Microsoft is the case example of how someone who “owns” an important technology platform can leverage it to get an advantage in selling other servicers. Technology outsourcers to servicers have monopolies, at least in certain products and geographies, sometimes across the servicer’s business, putting them in a particularly powerful position. It isn’t hard to see how problematic that role is, particularly in light of the other questions surrounding these companies.
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I’m guessing you saw what New Jersey is up to?
State number three is not waiting for the 50 AGs.
Bank of America, Lenders Face Possible Foreclosure Freeze in New Jersey
http://www.bloomberg.com/news/2010-12-20/bank-of-america-lenders-subject-to-new-jersey-court-order.html
And American Banker has uncovered why HAMP complaints fall on deaf ears. Homeowners don’t know they’re talking to an agency related to the foreclosers.
At The Atlantic, it’s suggested why the Obama Administration won’t do a moratorium.
How Servicer-Funded Body Became Ombudsman for U.S. Loan Mod Program
http://www.americanbanker.com/issues/175_242/how-a-fox-was-sent-to-guard-the-hamp-house-1030123-1.html
Can this get more insane? Year’s not over yet…
Ask Treasury officials why they decided to send at-risk borrowers to a group created by a major servicer, and their explanation is more pragmatic. The foundation had already created the 888-995-HELP toll-free hotline, and the Treasury did not want to have to reinvent the wheel.
“We didn’t want to confuse borrowers further,” said Cindy Gertz, the director of operations in the Treasury’s homeownership preservation office (it even cribbed from the foundation’s name). “We were leveraging the infrastructure and brand that already existed.”
Hahahaahahahah… oh my god, thank you Cindy Gertz. You made my day.
Fannie Mae must die. Dispatching legal goons to seize houses – really classy. Their executive leadership is filled with souless Wall Street obedient bitch-boys who knew exactly the shit they were enabling starting 10+ years ago.
Ironically, Fannie was created during the Great Depression, but Fannie helped create the current depression.
Seize their headquarters!
Cindy Gertz must think we are as dumb as she is. If brains were gasoline, she wouldn’t have enough to fill a piss-ant’s motorcycle doing half a lap around the inside of a cheerio.
nice! NC always needs more salt of the earth.
It’s interesting we’re talking about outsourcing by an outsourcing firm from a service firm contracted by the trading firms from the orginantion firms, who are often brought in by the primary banks. Or have I missed a few steps?
Everybody in finance seems to be work-shy. Or is it suit-shy?
I believe the operative model is called “plausible deniability”, made (in)famous by Ronald Reagan a la Iran Contra, when he shrugged and said, ‘Mistakes were made.’
We’ll see whether that operative model has so utterly consumed the Golden Goose (i.e., US taxpayers and legit businesses) that it has perhaps finally run its course. But then, I am an optimist.
Funny to see Paltrow jump on this after LPS rebuked the earlier article.
http://www.reuters.com/assets/print?aid=USN2011804520101220
Hi all,
Please never forget that Fannie Mae helped design the current working model for securing loans, loan servicing, (and all the necessary background activities which are needed to make the aforementioned functional.
It is called ‘distancing yourself from the entity about to go down in flames’.
Nobody does USE YOU AND THROW YOU UNDER THE BUS quite as well as Fannie Mae.
Have you forgotten the Fannie Mae directive threatening to fine servicers for not foreclosing fast enough earlier this year?
Fannie Mae is notorious at trying to keep a good public image but they have no problem getting down and dirty in the back room. (“We don’t support Seller funded down payment”–while purchasing every file they could get under the table in order to help reach their American Dream Commitment which was totally about hitting benchmarks for bonuses and not at all about integrity or the true desire to increase home ownership in the us.
Fannie Mae is essentially owned by the federal government but the staff of Fannie Mae still operate pretty much according to the culture they have created over the past 15 years. Since they are exempt from bearing the brunt of risk AND there is the critical need to continue to cover up the mess they helped to create (MERS was a Fannie Mae brain child).
For those who are directly affected by the foreclosure crisis or those of us who are attempting in some way to uncover the mess or make a difference in some other way, it is critical that all of us continually remember everything we have learned over the space of the past few months, put that into the context of FACTS which have been in operation for long periods of time (usually years). It would probably be most appropriate to FIRST, be suspicious of anything stated or any action taken by anyone other than the consumer UNTIL an analysis of the statement or position was weighed in the context of the HISTORY of the entity/individual/organization making the statement. Taking what they say NOW, on its’ face, would be a mistake.
Servicers can’t take a position AGAINST LPS and others–they can’t continue their gig taking homes without them.
After eight years of watching the mortgage mess grow to the point where it has reached the tipping point, I am actually enjoying reading, day by day, how the onion is now being peeled. Do not misunderstand, I am distraught about the short term implications for millions of Americans but as a seasoned consumer advocate, the current pain is necessary to get to the greater good which awaits us in the near future. I was getting scared I wasn’t going to live long enough.
Things are looking up. New Jersey and New York could turn the country in a whole new direction.
–Former Fannie Mae Broker-Specialist (1999-2002)
Currently a consumer advocate and
foreclosure intervention speaker/trainer
Thanks, Mildred! I have been following Yves here for less than a year, so I may have missed other comments from you. But we certainly need to hear from you and other former Fannie/Freddie insiders. Please come back often!
Your cautionary angle is very valuable. I suspect Fannie is attempting to shape press coverage in anticipation of class actions demanding Fannie pay up for its years of knowingly promoting unlawful practice of law by LPS and other vendors, and knowingly aiding & abetting foreclosure frauds by servicers. They are looking more like a racketeering enterprise every day. All we need to find are a few predicate acts like the threats & illegal inducements you hinted at.
Hey Everyone,
Would you be surprise to know that we are under the control of Fannie Mae and Freddie Mac now more than ever that they are so called GSE.
Fannie Mae does not want to miss a thing. Like they said, why waste an opportunity when there is a crisis.
Now we learn that Fannie Mae is imposing more of their power to servicers. Well, this does not seem to be like Fannie Mae. This are the guys who make sure no one can make any money on any real estate transaction out there. This are the guys who wants a piece of the action even if the investors buy and flip a property.
This are the guys who are imposing the new rules for Realtors and Loan Officers with the new law of NMLS licensing. I wonder how much of the action they take from the last 86,000 applicants who failed the S.A.F.E. Test last few months, a cost of more than $600 per applicant.
How long can the government shield and protect the masquerade of these agencies? How an agency that lives on the blood supplied by US tax payers, can have any powers to impose laws on the citizens of this country?
There must be laws written for private institutions that become government agencies that do not allow to create or pass laws on citizens or other sectors, when they are and were part of the problems that we are facing today due to the crisis instigated by the same organization.
Does anyone have the link to the actual directive from Fannie (on the Fannie website) regarding these new rules? Cannont find them anywhere
12/20 announcement: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/svc1018.pdf
Fannie 2010 announcement page: https://www.efanniemae.com/sf/guides/ssg/2010annlenltr.jsp?referrer=frpromo
Mike Konczal & other experts LIVE! now at New America Foundation, discussing chaos & fraud in mortgage market:
http://www.newamerica.net/events/2010/cleaning_up_the_mortgage_mess
[cross-posted]
Fannie Mae’s directive is a classic example of Bill Black’s concept of “control fraud”. He who controls the work flow (here, the payment of attorney’s fees) indirectly commits fraud by making it impossible to perform the required services legitimately. Here, competition among attorneys rewards those who claim they can get relief from stay in 30 days for less than $500. Stern’s office won the prize by dispensing with real affidavits, employing hair dressers instead of paralegals, and leveraging small margins with huge volume. If it works, everybody in the chain profits. If it doesn’t, those who designed the chain from the top down can claim they were ignorant of the actual fraud.
Our laws need to catch up with modern finance and computer technology. But that will never happen because those who make the laws were long ago captured by those who control the fraud.