Fannie Increases Restrictions on Lender Processing Services, Other Technology Middlemen; LPS Document Shows Degree of Influence Over Law Firms

Naked Capitalism…

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 :

Check out the rest of this one here…



LPS Scorecard