By Steve Viuker
NY AG Wins Another Round for Stricken Homeowners
New York State Attorney General Eric Schneiderman recently announced a multi-state settlement with Lender Processing Services, Inc. and its subsidiaries, LPS Default Solutions and DocX, to resolve claims of unlawful foreclosure practices, including robo-signing. The $121 million settlement, reached by New York, 44 other states and the District of Columbia, will require LPS and its subsidiaries to reform their business practices and, if necessary, to correct documents it improperly executed that harmed homeowners. New York’s share of the settlement is approximately $1.9 million. The action reinforces Schneiderman's role as, in essence, a robo-siging cop -- one of the most aggressive opponents of such practices.
Critics say that amount of the settlement is inadequate to recompense New York state homeowners under foreclosure, but its significance is not. It reinforces what banks across the nation have been saying since the crisis began – it’s the non-bank lenders who stoked the fires of the financial crisis. And it’s a symbol of how Schneiderman and other attorneys general around the country are not waiting for regulation from the Consumer Financial Protection Board to impose penalties on mortgage servicers. If the new banking regulations are hard to decipher, multimillion settlements are not.
This current settlement is not to be confused with two previous robo-deals, involving the nation’s largest banks. In one agreement, 10 of the nation’s largest banks paid $8.5 billion to borrowers for so-called “robo-signing.” A total of 3.8 million borrowers, designated as those who were in any stage of foreclosure in 2009 or 2010, will get either direct payments or mortgage assistance ranging anywhere from a few hundred dollars to more than $100,000, according to federal regulators. That settlement is the result of an independent foreclosure review ordered by the Office of the Comptroller of the Currency in 2011. It required banks to hire independent auditors to go back over loans from 2009 and 2010 to look for foreclosure abuses, but the reviews were taking too long and costing too much.
The targeted banks, which included Bank of America, Citibank, JPMorgan Chase and Wells Fargo, will make $3.5 billion in direct payments to borrowers and $5.2 billion in other assistance, such as loan modifications and forgiveness of deficiency judgments. All borrowers in the settlement will receive something, regardless if they were wronged in any way, according to federal regulators. Bank of America’s share is the largest at just under $3 billion in direct payments and borrower assistance, in part due to Bank of America purchasing Countrywide Financial.
This settlement follows a $25 billion deal last year with many of the same mortgage servicers and state attorneys general, resulting, so far, in nearly $22 billion in consumer relief and $4.2 billion pending to 300,000 borrowers through the end of September, roughly $84,385 per homeowner.
These Guys are Getting Tough
“Lender Processing Services, Inc., LPS Default Solutions and DocX cut corners in order to maximize their profits,” Schneiderman said in a statement. “My office will pursue any company that generates false or robo-signed documents that are used to foreclose on New York homeowners.” The proposed consent judgment resolves allegations that the Jacksonville-based company “robo-signed” documents and engaged in other improper conduct related to mortgage loan default servicing. LPS Default Solutions and DocX primarily provide technological support to banks and mortgage loan servicers.
Among other things, the settlement prohibits signature by unauthorized persons or those without first-hand knowledge of the facts attested to in filed documents, enhances oversight of the default services provided, and requires review of all third-party fees to ensure that the fees have been earned and are reasonable and accurate.
In a February 15 statement announcing the settlement of a separate matter with the U.S. Department of Justice, LPS President and CEO Hugh Harris referred to the agreement in a statement: “LPS has effectively dealt with its legacy issues related to past business practices and is squarely focused on delivering leading technology-driven solutions to enable the mortgage industry to meet its new requirements.” A company spokesman declined a request from Banking New York for further comment. [Editor's note: LPS is a data customer of The Warren Group, publisher of Banking New York.]
In the settlement, LPS stipulates to important facts uncovered in the investigation, including the practice by DocX of so-called “surrogate signing,” the signing of documents by an unauthorized person in the name of another and notarizing those documents as if they had been signed by the proper person. Once the judgment is entered by the courts, LPS will undertake a review of documents executed during the period of Jan. 1, 2008, to Dec. 31, 2010, to determine what documents, if any, need to be re-executed or corrected. If LPS is authorized to make the corrections, it will do so and will make periodic reports to the attorney general of the status of its review and/or modification of documents.
Bringing it all Back Home
In late March 2012, Schneiderman announced that up to $15 million of the $132 million he secured in the national mortgage servicing settlement will be used to extend funding for foreclosure prevention and other related services. Up to $9 million of the allocation will support the state’s Foreclosure Prevention Services Program, which was set to expire on April 1. And up to $6 million will support housing and community renewal activities statewide through not-for-profit community-based housing organizations. Schneiderman's office will fund an additional $3 million in foreclosure prevention services to aid New Yorkers struggling through the mortgage crisis from proceeds secured from two separate settlements.
“Some loan processing companies had become lackadaisical when it comes to filing and reviewing documents related to foreclosure proceedings,” said Gary Malin, president of Manhattan-based Citi Habitats. “The foreclosure process can be heart-wrenching for the homeowners involved, and is a very serious matter, so it is important for all related paperwork to be double-checked and in order. This settlement sends a message to these companies that they need to revise their operating practices and follow the proper protocol, instead of cutting corners. ... In my view, any settlement that results in increased protection for consumers is a good thing.”
Malin added, "If several houses in close proximity all have tall grass and weeds in the yard, and are in a state of general disrepair, it pulls down the value of all the homes in the area. It’s difficult to fall in love with a home and a community if it looks like nobody in the neighborhood cares.“
He said municipal governments also need to make sure foreclosed properties cause minimal disruption to the surrounding residents. Communities have passed legislation that requires banks to register properties with the local police department when a notice of default is issued and when the property becomes vacant. These ordinances also require banks to inspect these homes regularly and maintain them fully – all of which costs the banks.
However, Malin says, buyers may now be able to buy foreclosed homes at a significant discount. If the value of surrounding homes is also depressed as a result of the foreclosures, then they may also be a good option to pick up at considerable savings, which could be a wise long-term investment. As the housing market recovers, the value of these homes will rise. "It’s a case-by-case basis, but look for homes in areas with easy access to highways or mass transit lines, in stable, established towns that are not too-far flung from the city center. Homes in these areas are likely to appreciate the fastest.”
However, Steve Dibert, president of MFI-Miami, a mortgage fraud investigative firm and a blunt critic of banks, characterizes settlements as a way for banks to get the issue behind them and move on. But he says the problems created by past bad practices can’t be eradicated with a check. “[T]here are years of documents that haven’t been reviewed,” he says.”We have only scratched the surface.”■