Congressional Democrats want to know why government-backed mortgage finance giant Fannie Mae's is farming out foreclosure paperwork to "foreclosure mill" law firms accused of rubber-stamping tens of thousands of possibly bogus documents.
"The firms have been accused of fabricating or backdating documents, as well as lying to conceal the true owner of a note," wrote House Financial Services Committee chairman Barney Frank (Mass.), Rep. Alan Grayson (Fla.) and Rep. Corrine Brown (Fla.) in a letter to Fannie Mae president Michael Williams. "Several of the busiest of these mills show up as members of Fannie Mae's Retained Attorney Network, a set of legal contractors on whom Fannie relies to represent its interests as a note-holder."
Ally Financial, the nation's fourth-largest home lender, halted evictions in 23 states this week after a document processor admitted in a deposition that he never verified information in foreclosure paperwork and that he never signed the documents in the presence of a notary public.
HuffPost readers: Do you have foreclosure documents signed by Ally Financial's Jeffrey Stephan? Tell us about it -- email email@example.com.
"Because many mortgages have been bought and sold by different institutions multiple times, key paperwork involved in the process to obtain foreclosure judgments is often missing. On numerous occasions, allegedly fabricated documents have been presented to the courts in foreclosure actions to obtain final judgments against homeowners," said Florida Attorney General Bill McCollum in a statement announcing an investigation of three law firms in Florida. "Thousands of final judgments of foreclosure against Florida homeowners may have been the result of the allegedly improper actions of the law firms under investigation."
Attorneys General in Iowa and Texas have opened investigations of their own.
"Why is Fannie Mae using lawyers that are accused of regularly engaging in fraud to kick people out of their homes?" wrote Frank et al in their letter. "Given that Fannie Mae is at this point a government entity, and it is the policy of the government that foreclosures are a costly situation best avoided if there are any lower cost alternatives, what steps is Fannie Mae taking to avoid the use of foreclosure mills?"
Fannie Mae did not immediately respond to a request for comment from HuffPost.
Here's the letter:
September 24, 2010
Michael J. Williams
President and Chief Executive Officer
3900 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Dear Mr. Williams,
We are disturbed by the increasing reports of predatory 'foreclosure mills' in Florida working for Fannie Mae servicers. Foreclosure mills are law firms representing lenders that specialize in speeding up the foreclosure process, often without regard to process, substance, or legal propriety. According to the New York Times, four of these mills are both among the busiest of the firms and are under investigation by the Attorney General of Florida for fraud. The firms have been accused of fabricating or backdating documents, as well as lying to conceal the true owner of a note.
Several of the busiest of these mills show up as members of Fannie Mae's Retained Attorney Network, a set of legal contractors on whom Fannie relies to represent its interests as a note-holder. The network also serves as a pool of legal talent that represents Fannie in its pre-filing mediation program, a program designed to facilitate communication between borrowers and servicers prior to foreclosure. In other words, Fannie Mae seems to specifically delegate its foreclosure avoidance obligations out to lawyers who specialize in kicking people out of their homes.
The legal pressure to foreclose at all costs is leading to a situation where servicers are foreclosing on properties on which they do not even own the note. This practice is blessed by a legal system overwhelmed with foreclosure cases and unable to sort out murky legal details, and a set of law firms who mass produce filings to move foreclosures as quickly as possible. At the very least, we would encourage you to remove foreclosure mills under investigation for document fraud from the Fannie Mae's Retained Attorney Network. We also believe that Fannie should have guidelines allowing servicers to proceed on a foreclosure only when its legal entitlement to foreclose is clearly documented. In addition, these charges raise a number of questions for us about the foreclosure process as it pertains to Fannie Mae's holdings.
Why is Fannie Mae using lawyers that are accused of regularly engaging in fraud to kick people out of their homes? Given that Fannie Mae is at this point a government entity, and it is the policy of the government that foreclosures are a costly situation best avoided if there are any lower cost alternatives, what steps is Fannie Mae taking to avoid the use of foreclosure mills? What additional steps is Fannie Mae going to take to ensure that foreclosures are done only when necessary and only in accordance with recognized law? How do your servicer guidelines take into account the incentives for fraud in the fee structure of foreclosure attorneys and others engage in the foreclosure process? What mechanisms do you employ to monitor legal outsourcing?
We look forward to your responses and to understanding more about these disturbing dynamics in future hearings.
Member of Congress
Member of Congress
Member of Congress