Fannie, Freddie End Lawyer Networks Amid Foreclosure Woes

Fannie Mae and Freddie Mac will phase out their foreclosure attorney networks in the wake of the so-called robo-signing scandal, the companies’ regulator said.

The Federal Housing Finance Agency directed the companies to transition to a system that allows mortgage servicers to select their own law firms for processing defaults and foreclosures, rather than relying on a pool of attorneys designated by Fannie Mae or Freddie Mac.

The move is in line with an ongoing effort to establish uniform foreclosure processes at the two companies, the FHFA announced in a press release.

Fannie Mae currently requires mortgage servicers handling its loans to use its Retained Attorney Network for foreclosures and bankruptcies. Some of those lawyers have been accused by lawmakers, regulators and consumer groups of mishandling paperwork for evictions and foreclosures, including falsifying signatures on court affidavits. The dispute led many mortgage servicers to suspend foreclosure activity last year.

In a September report, the FHFA’s Office of Inspector General found that Fannie Mae did not monitor the conduct of its 191 network law firms.

Earlier this month, Representative Elijah Cummings of Maryland, the top Democrat on the House Oversight and Government Reform Committee, asked FHFA Acting Director Edward J. DeMarco to consider ending the Fannie Mae program.

Cummings Statement

Cummings said in a statement today he would press FHFA for details on how law firms will be monitored under the new system “to ensure that specific measures are in place to require mortgage servicers to properly oversee the actions of law firms conducting foreclosure proceedings.”

Fannie Mae will phase out its existing system “with minimal disruption,” spokeswoman Amy Bonitatibus said.

Freddie Mac’s Designated Counsel Program also will be eliminated. Fannie Mae and Freddie Mac, the government-controlled mortgage companies, have drawn more than $170 billion in taxpayer aid since they were taken into conservatorship three years ago.

Banks and mortgage services have been in talks since early this year with state attorneys general and federal regulators over settling claims related to flawed foreclosures.

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