By Scot J. Paltrow
WASHINGTON, Dec 20 (Reuters) - Fannie Mae on Monday issued new rules meant to clamp down on excessive foreclosure fees and other abuses by mortgage loan servicers and the companies they farm work out to.
The new rules will increase costs to servicers of Fannie Mae mortgages, the big banks and other companies that are responsible for handling routine collection, foreclosure and other chores for investors who bought securitized mortgages.
The rules will restrict the fees servicers can pass on to Fannie Mae, the largest provider of funding for U.S. home mortgages, from third-party vendors. Several third-party firms have been implicated in producing phony documents in foreclosure cases and relying on 'foreclosure mills,' law firms that file huge numbers of foreclosures while skirting legal requirements.
Lawsuits have accused third-party companies of assigning foreclosure work to law firms in exchange for kickbacks disguised as 'technology' fees for access to the companies' computer systems.
Beginning Feb. 1, third-party companies no longer will be allowed to charge fees to lawyers, and the servicers will have to pay the full amounts themselves, and not pass them on to Fannie Mae, beyond a nominal $25 per foreclosure case.
A spokesman for Freddie Mac, the second largest U.S. home finance company, said that it, too, is considering imposing new rules similar to the ones announced by Fannie Mae.
'We are looking at it closely and have been discussing a similar approach,' he said.
Both Fannie and Freddie have been under control of the federal government since September 2008.
Fannie Mae's new rules could have particular impact on Lender Processing Services, the largest of the third-party companies, which handles more than half of foreclosures in the United States on behalf of nearly all of the biggest loan servicers, such as Wells Fargo and JPMorgan Chase.
A Reuters Special Report on Dec. 6 disclosed that Jacksonville, Florida-based LPS funneled legal work to its own network of lawyers, deriving large profits from the fees.
A class action lawsuit filed in Mississippi alleges that LPS's fees amounted to kickbacks from law firms, and that LPS itself was illegally practicing law.
Reuters reported that LPS signed up a vast network of lawyers and pressed them to turn out cases extremely rapidly. Those who worked the fastest and spent the least amount of time carefully preparing foreclosure documents were rewarded with more work, while LPS's computer system automatically cut the flow of work to law firms that spent more time on each document.
LPS denies the fees are improper and says they are merely charges for use of its automated foreclosure system, not payments for assigning work.
Taylor Griffin, an LPS spokesman, said the company had no immediate comment.
Janis Smith, a Fannie Mae spokeswoman said the company wouldn't comment on the reasons for the new rules.
Fannie Mae's new rules also will ban third-party companies from having any role in choosing the lawyers who handle foreclosure cases on behalf of the loan servicers.
A Wells Fargo spokesman said the company had just received the new Fannie Mae rules and that it was too soon to comment.
Spokesmen for JPMorgan and other servicers also said they had not yet had time to examine the new rules.
(Editing by Leslie Adler) Keywords: USA HOUSING/SERVICERS (scot.paltrow@thomsonreuters.com; +1 202-310-5487; Reuters Messaging: scot.paltrow.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
WASHINGTON, Dec 20 (Reuters) - Fannie Mae on Monday issued new rules meant to clamp down on excessive foreclosure fees and other abuses by mortgage loan servicers and the companies they farm work out to.
The new rules will increase costs to servicers of Fannie Mae mortgages, the big banks and other companies that are responsible for handling routine collection, foreclosure and other chores for investors who bought securitized mortgages.
The rules will restrict the fees servicers can pass on to Fannie Mae, the largest provider of funding for U.S. home mortgages, from third-party vendors. Several third-party firms have been implicated in producing phony documents in foreclosure cases and relying on 'foreclosure mills,' law firms that file huge numbers of foreclosures while skirting legal requirements.
Lawsuits have accused third-party companies of assigning foreclosure work to law firms in exchange for kickbacks disguised as 'technology' fees for access to the companies' computer systems.
Beginning Feb. 1, third-party companies no longer will be allowed to charge fees to lawyers, and the servicers will have to pay the full amounts themselves, and not pass them on to Fannie Mae, beyond a nominal $25 per foreclosure case.
A spokesman for Freddie Mac, the second largest U.S. home finance company, said that it, too, is considering imposing new rules similar to the ones announced by Fannie Mae.
'We are looking at it closely and have been discussing a similar approach,' he said.
Both Fannie and Freddie have been under control of the federal government since September 2008.
Fannie Mae's new rules could have particular impact on Lender Processing Services, the largest of the third-party companies, which handles more than half of foreclosures in the United States on behalf of nearly all of the biggest loan servicers, such as Wells Fargo and JPMorgan Chase.
A Reuters Special Report on Dec. 6 disclosed that Jacksonville, Florida-based LPS funneled legal work to its own network of lawyers, deriving large profits from the fees.
A class action lawsuit filed in Mississippi alleges that LPS's fees amounted to kickbacks from law firms, and that LPS itself was illegally practicing law.
Reuters reported that LPS signed up a vast network of lawyers and pressed them to turn out cases extremely rapidly. Those who worked the fastest and spent the least amount of time carefully preparing foreclosure documents were rewarded with more work, while LPS's computer system automatically cut the flow of work to law firms that spent more time on each document.
LPS denies the fees are improper and says they are merely charges for use of its automated foreclosure system, not payments for assigning work.
Taylor Griffin, an LPS spokesman, said the company had no immediate comment.
Janis Smith, a Fannie Mae spokeswoman said the company wouldn't comment on the reasons for the new rules.
Fannie Mae's new rules also will ban third-party companies from having any role in choosing the lawyers who handle foreclosure cases on behalf of the loan servicers.
A Wells Fargo spokesman said the company had just received the new Fannie Mae rules and that it was too soon to comment.
Spokesmen for JPMorgan and other servicers also said they had not yet had time to examine the new rules.
(Editing by Leslie Adler) Keywords: USA HOUSING/SERVICERS (scot.paltrow@thomsonreuters.com; +1 202-310-5487; Reuters Messaging: scot.paltrow.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.