We have all been following closely the drama relating to main stream media's reporting of such actions as "robo-signing" and "liars affidavits" in foreclosure case filed nationwide.
FHFA has released it's report on Fannie Mae's Default Related Legal Services. The audit report dated September 30, 2011 reveals much, but not much is news. It was however, a very interesting read; and if you, like I, are actively engaged in REO transactions, it will make your blood boil.
The report specifically addresses Fannie's use of their Retained Attorney Network and the allegations of inappropriate foreclosure practices. (of note, two of the firms named on the RAN list for Maryland have been accused of having filed erroneous documentation with the courts)
On February 25, 2011, Representative Elijah E. Cummings (D-MD) requested that the FHFA Office of Inspector General examine allegations of abuse by law firms hired to process foreclosures as part of the RAN.
The findings of the report indicate that in December of 2003 Fannie Mae had been made aware of foreclosure abuse allegations by a shareholder, BUT it wasn't until 2005 that Fannie hired an outside law firm to investigate these allegations. The report of the outside law firm, issued in May 2006 found that:
and affidavits…. The practice could be occurring elsewhere. It is axiomatic that the practice is improper and should be stopped. Fannie Mae has not authorized this unlawful conduct. Further, the report observed that Fannie Mae did not take steps to ensure the quality of its foreclosure attorneys’ conduct, the legal positions taken in the attorneys’ pleadings, or the manner in which the attorneys processed foreclosures on the Enterprise’s behalf .
[F]foreclosure attorneys in Florida are routinely filing false pleadings
Fannie Mae officials claim that they informed an OFHEO senior official of the report during a phone conversation in 2006, but they is no record of the communication.
In 2008, allegations began spreading about "foreclosure mills". In addition to that fact, I personally made several government officials aware of the problems that could be anticipated by Fannie's continued use of foreclosure mills as it relates to the "cradle to grave" structure that had been put in place. Those letters sent by me went unanswered, nor did a single recipient even ackowledge receipt.
In June, 2010, FHFA officials conducted a two day field visit to Florida to enable them to better understand the foreclosure process. The report noted that servicers, attorneys, and other supporting personnel were overloaded with the volume of foreclosures, that documentation problems were evident, and that law firms were not devoting the time necessary to their cases due to Fannie Mae's flat fee structure and volume based processing model. (emphasis added); an action list was completed, which included:
- Incorporating foreclosure checklists
- Revising the compensation model
- Engaging the Enterprise (FNMA) on servicer and law firm problems such as
- lost/mishandled documents
- inadequate responsiveness to borrowers; and
- delays in the foreclosure process
FHFA-OIG has found NO EVIDENCE that action was taken on any of these items.
Shortly after the Florida visit, FHFA notified senior Fannie Mae officials about the results of the visit, including that: "attorneys are increasingly unprepared when they enter the courtroom (e.g., they don’t have the note, don’t know if the borrower has been offered HAMP [a loan modification], service has been canceled, etc.) which cause foreclosure sale cancellations and ultimately lengthens time lines." FHFA did not ask Fannie Mae for a response to the information provided concerning the results of the Florida visit.
In November, 2010, FHFA initiated concurrent special reviews of Fannie Mae's RAN and Freddie Mac's Designated Counsel Program (DCP).
The Agency concluded its review in January 2011, and Agency examiners documented their findings in a memorandum and verbally briefed Fannie Mae about the findings. Among other things, the examiners concluded that Fannie Mae could have reacted to foreclosure deficiencies sooner because, "deteriorating industry conditions over the past several years should have provided adequate warning to the GSEs to review policies, processes, and controls of other vendors and counterpart's includingg law firms."
The examiners also found:
- Fannie Mae failed to perform a formal cost-benefit analysis to determine if the RAN is cost effective
- Prior to the media reports in August, 2010 Fannie Mae had inadequate controls in place to prevent or detect foreclosure abuses.
- Fannie Mae had not developed adequate procedures for the RAN; such as procedures for determining whether a firm should be added or removed; conducting oversight of RAN participants by its NSO; performing on site visits to law firms by Fannie Mae's internal legal department; defining steps that oversight employees must take if they uncover an issue such as improper preparation and/or notarization of documents used in foreclosure proceedings
- Fannie Mae had not developed comprehensive training manuals for the RAN firms
- Fannie Mae's ongoing monitoring of RAN firms was inadequate. If a law firm self-reported no issues as it processed cases, then Fannie Mae presumed the firm was doing a good job, (emphasis added).
FHFA has briefed FNMA management on the results of it's special review but a final report has not been published or released to the Enterprise. FHFA is still deliberating on the best course of action concerning Fannie Mae's RAN.
Fannie Mae's Efforts to Address Allegations of Abuse
Fannie Mae has also initiated multiple efforts to address foreclosure efforts-
- Audits and reviews of law firms. The audits included reviews of fees and costs charged; the accuracy of the language used in foreclosure pleadings; and compliance with state foreclosure processes.
Through June, 2011 contractors retained by Fannie Mae have conducted 49 on site reviews of law firms. FHF-OIG determined that the reports reviewed missed the opportunity to confirm and provide better understanding of the allegations of abuse. Instead, the audits and reviews were narrowly focused on areas such as attorney fees and engagement letters, rather that on more substantiative qualitative issues regarding foreclosure processing in compliance with applicable law and regulation.
- Questionnaires to RAN law firms:
After the debacle involving the Stern firm, Fannie Mae e-mailed questionnaires to all RAN firms asking them if they had similar issues to the Stern Firm. Most of the RAN firms acknowledged receipt of the questionnaire and/or provided confirmation that their policies and procedures are in compliance. Several RAN firms did disclose issues and Fannie Mae stated that it worked with these firms to understand the issues and to develop a plan of remediation.
FHFA-OIG finds that
- Various indicators could have led FHFA to identify and address the heightened risk posed by foreclosure abuses prior to late 2010
- FHFA supervisory planning and guidance do not adequately address default related legal services
- FHFA does not have a formal process for the Enterprise to share information about problem law firms.
Fannie Mae has terminated six law firms from its RAN since 2008, but FHFA does not have a formal policy or practice to apprise either Enterprise of the other Enterprise’s termination actions. Moreover, Freddie Mac has terminated law firms for poor performance, and Fannie Mae has retained the firms. Indeed, Freddie Mac terminated one law firm that processed over 43% of Fannie Mae’s loan foreclosures in Florida. Freddie Mac voluntarily notified Fannie Mae of its reasons for terminating the firm, which included foreclosure processing abuses, but Fannie Mae decided to retain the law firm’s services. Fannie Mae determined that the cost of transferring its files from the firm to a replacement vendor would be substantial. Additionally, Fannie Mae claimed it would work closely with the firm to mitigate its deficiencies. In another example, Freddie Mac terminated a law firm in Maryland, and, again, Fannie Mae decided to retain its services. Fannie Mae asserted that it reviewed the allegations and did not find the same type of deficiencies in its review of the firm.
Note of interest, that while Fannie Mae may not have found any problems with the Maryland firms referred to, the Maryland courts, DID.
When Fannie Mae terminated the Stern firm, it estimated that it would incur approximately $5.5m in total costs. This cost included the cost of file transfer at an estimated $200/file for approximately 23K files and other associated costs at approximately $900K.
Throughout my read and review of this document, I found nothing that even touches on the cost to the entire real estate community and on our economy as a whole as it relates to the shoddy work done by these firms and the continued efforts on the part of the GSE's to maintain the "cradle to grave" practice that continues today.
In their ongoing effort to "save" money the GSE's have cost the taxpayers MILLIONS of dollars in the cost of litigation resulting from the work performed by some of these RAN firms, the cost to the court system for having to reveiw and re-review the documentation presented to the courts, the endless hearings to confirm that in fact the documents presented with foreclosure filings are accurate and factual, the cost to title underwriters and title agents nationwide for title clearance, claims filed and paid out relating specifically to shoddy foreclosure work, the cost to the individual states for having to set up and maintain foreclosure mediation, the cost of the individual states to enact and pass into law special provision to provide oversight of these foreclosure cases, the cost to consumers for delayed closings and/or contract cancellations due to severe defects in the foreclosure filings, and on and on.
I cannot believe that by allowing a member of the RAN to self-report, that Fannie Mae feels they have actually accomplished anything. What firm is going to self report the fact that they have "robo-signed" pleading or that they have been complicate in fraud when filing a lost note affidavit before even trying to find the note. These firms and the title companies that are owned by or controlled by the RAN firms are making money faster than it can be spent; they are not going to readily admit to wrongdoing at the risk of losing the business of the GSE's. The fee structure that has been put in place by the GSE's makes speed the priority. These RAN firms and the title agencies owned by or controlled by the RAN firms are not necessarily taking the TIME necessary to clear title, or to even conduct a proper title search, relying instead on the lender's title policy (which they may or may not actually have a copy of ) and doing a quick title search from the date of the deed forward. Such shoddy work will continue to undermine the integrity of the title system for years and will continue to cost the taxpayers MILLIONS of dollars.
I applaud Congresman Cummings and the auditors for taking this major step toward fleshing out and making public the abuses being perpetuated by the GSE's at the expense of the public. But, there is much more to be done, and much more to be investigated. While it would appear that no real change is going to take place any time soon, at least it's a step in the right direction.