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FHFA Bans GSEs From Picking Foreclosure Attorneys

OCT 19, 2011 1:47pm ET
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The Federal Housing Finance Agency this week directed Fannie Mae and Freddie Mac to start transitioning to a new system where mortgage servicers pick the foreclosure attorneys they work with -- not the GSEs.

"The changes will be implemented after a transition period in which input will be taken from servicers, regulators, lawyers and other market participants,” the GSE regulator said in a statement. “During this period, existing contracts remain in place and in effect.”  

Currently, Fannie and Freddie have designated law firms that servicers are required to use in certain states for processing foreclosures.

Some of the law firms retained by the GSEs were involved in the robo-signings of affidavits and other foreclosure documents. 

A recent FHFA Inspector General audit found that Fannie Mae officials knew back in 2006 that Florida attorneys representing the GSE were filing false documents in foreclosure proceedings. But Fannie did nothing about it and allowed these illegal practices to continue. 

Under the new system, the servicers will select the law firms that meet certain uniform criteria set by FHFA.

The GSE regulator also expects servicers to follow uniform foreclosures processing standards that went into effect October 1.

Fannie expects to see "minimal disruption" during the phase out of its network of foreclosure attorneys, said a company spokeswoman.  

"During the transitional period, network firms will continue to handle default- and foreclosure-related litigation and legal matters, and servicers will continue to be responsible for managing the foreclosure process and monitoring network firm performance, each in accordance with Fannie Mae's current requirements and contractual arrangements," she said.

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