Piggybankblog posted on 03/08/13
Cross linked with blogs.wsj.com
A U.S. senator has asked Attorney General Eric Holder to investigate the business practices of a company that provides technology services to lenders and other companies that process foreclosures.
In a letter sent to the Department of Justice on Thursday, Sen. Ron Wyden (D., Ore.) raised concerns over the business practices of Lender Processing Services Inc. LPS +0.32%, a Jacksonville, Fla.-based company that offers software and logistical services for mortgage companies. The letter alleges that LPS employed an improper fee structure that resulted in double-billing homeowners or mortgage investors for legal services related to the processing of foreclosures and bankruptcies.
It also says that the firm’s business model may have been responsible for sowing what became known as “robo-signing,” where bank attorneys and paralegals improperly signed off on foreclosures.
The allegations made in the letter “are incorrect,” said Michelle Kersch, a company spokeswoman, in a statement. “In fact, over the last several years, federal and state courts across the country have dismissed 15 civil cases that were based on the same failed allegations.”
The letter identified concerns brought forward by an unnamed industry professional that Sen. Wyden’s staff said it found credible, after reviewing them with other industry analysts and government regulators, according to the letter.
The letter describes the LPS arrangement this way: Banks would receive free access to the firm’s mortgage-processing software in exchange for agreeing to use foreclosure-related legal services provided by the company’s preferred network of law firms. LPS would then charge homeowners or mortgage investors for those services, even though LPS wasn’t providing any legal services itself. Moreover, the letter alleges banks are already collecting a portion of borrowers’ monthly payment to cover the costs of managing loan payments. Sen. Wyden’s letter said that charging borrowers or investors for legal services could constitute double billing.
Finally, the letter raises concerns that by “carving off a significant percentage of the monies that should fund the legal work of law firms, LPS has made it difficult for firms to operate efficiently.” Given that those practices could have contributed to “devaluing the system’s legal checks and balances and rewarding the quantity of work over its quality, I do not think it was surprising that robo-signing became common practice,” Sen. Wyden wrote.
Ms. Kersch said that LPS doesn’t charge or pass any fees along to borrowers, and that technology and service fees are billed only to parties that use LPS’s products. The company also said that it doesn’t provide legal services and that it has no involvement in setting attorneys’ fees.
Sen. Wyden asked the Justice Department whether it had reviewed the LPS business practices and whether there is anything Congress might do to increase transparency for fees that accrue when borrowers fall behind on their mortgage payments. A spokeswoman for the Justice Department said the department was reviewing the letter.
Some of the allegations raised in Sen. Wyden’s letter were included in a shareholder class action lawsuit filed two years ago by a pension fund for city employees of St. Clair Shores, Mich. A federal judge approved LPS’s bid to dismiss the lawsuit last year. LPS reached a preliminary agreement to settle the lawsuit for an undisclosed amount in January after the suit was re-filed, and LPS, which didn’t admit wrongdoing, said it would add $14 million to its legal reserves to cover the costs of the settlement.
LPS struck several legal settlements earlier this year concerning an alleged mortgage-forgery scheme by a subsidiary, DocX LLC. In April 2011, LPS signed a consent order with the Federal Reserve Bank of Atlanta as banking regulators uncovered widespread foreclosures abuses identified at 14 of the nation’s largest banks. The consent order didn’t require LPS to admit wrongdoing.
LPS agreed to pay $35 million last month as part of a non-prosecution agreement with the U.S. Department of Justice concerning a federal investigation of DocX. It also agreed to pay $127 million to settle similar claims by 46 states concerning so-called “robo-signing.” The company didn’t admit to any wrongdoing. The former chief executive of DocX last year pleaded guilty in federal court in Jacksonville to preparing and filing more than one million fraudulently signed and notarized mortgage-related documents.
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