Flat Fees Paid by Fannie were Inadequate for its Legal Firms
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Fannie Mae was warned as early as 2003 that the legal firms it had had engaged in fixing defaulting mortgages and foreclosures were indulging in illegal operations. The findings of an external firm engaged to do the necessary probe concluded that, as a matter of routine, the attorneys were “filing false pleadings and affidavits”.
A spokesperson at Fannie Mae refused to make any comments but agreed that the investigation conducted in 2006 had honed in on a specific issue regarding filing affidavits on notes that had been mislaid. She said that the issue had been resolved immediately.
In 2010, a visit to the field by Fannie Mae’s staff found that ir network of attorneys were so weighed down by foreclosures that the fees paid by Fannie on a flat rate failed to give the necessary time to properly process the related documents. Consequently, these resulted in attorneys resorting to cutting corners.
This problem has become rampant even outside Florida. A judge of New Jersey found in 2006 that the lawyers operating on behalf of Fannie had posted 250 motions seeking permission to seize residences. In all of these, only one employee had signed – a person who had not been in the employment of the firm for over a year.
FHFA took over the task of supervising Fannie in July 2008. It also failed to ensure that Fannie was supervising its attorneys in a proper manner.
FHFA recommended many steps that Fannie should in order to prevent future abuses –introduction of checklists for the attorneys, revising the money paid to the lawyers as incentives for expediting foreclosures and penalizing those who performed poorly. It was also suggested that Fannie Mae engaged lawyers and servicers to bring down the number of lost documents and other related problems.
In a recent report, the Inspector General for FHFA found no evidence of any action being taken based on the above suggestions. No improvement was made even after the media focused heavily on the foreclosure lapses that occurred during the autumn of last year.
The internal review of FHFA was completed in January 2011 and Fannie was briefed on the results of the report. It was stated that Fannie had not met the safety rules and standards regarding its dealings with the attorneys. However, the report was not released formally or even published.
The I.G report concluded that Fannie had to be more proactive in seeing to the operations of its attorneys and that the FHFA had to improve its monitoring of Fannie Mae.
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