Fannie Mae and Freddie Mac are dumping their law firm networks and instead will let mortgage servicers hire their own lawyers to process foreclosures.
The Federal Housing Finance Authority, which serves as conservator of the two government-sponsored enterprises, said the move “will lead to greater transparency and benefit delinquent borrowers who become subject to the foreclosure process.”
Fannie Mae’s Retained Attorney Network, or RAN, currently includes 191 firms in 45 states, according to the FHFA’s Office of Inspector General, which on Sept. 30 issued a report criticizing the program.
The changes will be implemented after a transition period, when mortgage servicers, lawyers, regulators and others will have a chance to comment. The plan calls for mortgage servicers (who contract with Fannie or Freddie to collect the monthly mortgage payments on their portfolio of loans) to “select qualified law firms that meet certain minimum, uniform criteria” rather than only being allowed to hire in-network firms, according to FHFA.
In either case, the mortgage servicer works directly with the lawyers – Fannie does not manage individual firms as they litigate foreclosures.
Fannie established the network in 1997, claiming that it allowed it to control costs through negotiated rates. But in-network lawyers have since been accused of robo-singing documents, losing records, levying inappropriate fees and filing forged documents.
The agency IG found that FHFA “lacks assurance that law firms with histories of performance deficiencies do not jeopardize the safety and soundness of the enterprises.”