DOJ Probing Mortgage Data Processing Firms

DOJ Probing Mortgage Data Processing Firms

By Peg Brickley
Of DOW JONES DAILY BANKRUPTCY REVIEW

The Department of Justice is conducting a nationwide probe of the company whose automated systems handle half the mortgages in the U.S., looking for evidence Lender Processing Services Inc. (LPS) has “improperly directed” the actions of lawyers in bankruptcy court.

The Jacksonville, Fla., company was spun out last year from Fidelity National Information Services Inc. (FIS), a financial technology giant that is also under scrutiny for its role in court actions, according to documents filed with the U.S. Bankruptcy Court in Philadelphia.

Although the companies say they are providers of electronic information services, the U.S. trustee believes LPS and Fidelity play a “much greater” role in court actions where thousands of homes are at risk of foreclosure, according to Bankruptcy Judge Diane Weiss Sigmund.

“The thoughtless mechanical employment of computer-driven models and communications to inexpensively traverse the path to foreclosure offends the integrity of our American bankruptcy system,” Sigmund wrote in a decision released Wednesday, April 15.

A spokeswoman for Fidelity did not respond to requests seeking comment on the investigation by the Office of the U.S. Trustee, an arm of the Department of Justice whose mission includes safeguarding the integrity of the bankruptcy courts.

Michelle Kersch, a spokeswoman for LPS, said the U.S. trustee has “advised outside counsel for LPS that it is seeking to better understand LPS’ role.” In an e-mail, Kersch pointed out that the judge held the lawyers, not LPS, responsible for the problems in the case before her.

The probe of the mortgage technology operation surfaced in a Philadelphia case after Sigmund started asking questions about the source of false court filings that came from HSBC Mortgage Corp. In pursuit of homeowners Niles and Angela Taylor, HSBC filed the wrong mortgage, gave incorrect payment amounts and claimed the Taylors had missed monthly payments. This “was simply not true,” Sigmund wrote in a 58-page decision.

Pressed to produce a loan history for the Taylors, HSBC’s lawyer confessed the system simply wouldn’t give it to him.

HSBC, it turns out, had handed off servicing of the troubled loan to Fidelity, which spun out LPS last year. The processes the company uses to crank out court documents for fast, cheap foreclosures were the culprit, the judge found.

By forcing lawyers to talk to computers rather than to their clients – the lenders – LPS makes it hard for lawyers to do right by the court and discharge their ethical obligations, Sigmund said.

Lawyers at one level spot-check a fraction of the documents that are on their way to foreclosure actions, Sigmund found. But the business is built for profitability rather than reliability, and counts on “lower-cost labor,” according to the judge.

Although LPS’s system “has many features that make a volume business process more efficient, the users may not abandon their responsibility for fairness and accuracy to the seduction of electronic communication,” Sigmund wrote.

She faulted HSBC and some of the lawyers involved in the case for having “sacrificed accuracy and fairness to efficiency and cost-savings,” by relying on LPS’s systems.

Fidelity, later LPS, is the electronic powerhouse behind the foreclosures rolling through much of the country, taking in data and spitting out loan-default notices for 16 of the 20 largest mortgage-loan servicers in the nation. Banks like HSBC and mortgage servicers outsource the handling of their troubled loans to LPS’s default management services business.

Business is booming in the loan default unit, LPS’s financial reports say, with revenue up 68.3% for the fourth quarter of 2008, compared with the same period a year earlier.

Consumer advocates have long complained that Fidelity and LPS are much more than electronic data providers. The companies say which lawyers get the lucrative business of foreclosing on troubled homeowners. Those who move the fastest are rewarded, said O. Max Gardner III, a consumer bankruptcy attorney. Those who pause to ask questions or to investigate whether a loan should be foreclosed, don’t last as LPS network attorneys, Gardner said.

“The Fidelity-LPS system represents a complete outsourcing of the foreclosure and bankruptcy process to a third-party, Fidelity-LPS, who then manages the entire legal process,” Gardner said in an e-mail Thursday, April 16.

Sigmund’s opinion revealed that the Department of Justice is looking at Fidelity, LPS and the law firm that handles HSBC Mortgage Corp.’s troubled loan business nationwide, Moss Codilis LLP.

Moss Codilis did not reply to an e-mail seeking comment on the investigation, which involves a number of bankruptcy cases, according to Philadelphia court documents.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)

-By Peg Brickley, Dow Jones Daily Bankruptcy Review; 302-521-2266; peg.brickley@dowjones.com

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The article references an epic in-depth 58 page opinion written by Pennsylvania US Bankruptcy Judge Sigmund in which she enlightens the world to the practices of these third-party lender processing services, and calls the legal profession to adhere to higher standards of professional responsibility when engaging them. It’s a good read and most timely. It’s an opinion that will surely be controlling across this nation.

Allan
BeMoved@AOL.com

9 Responses

  1. The insurance Commissioners fined Fidelity, Fatco and Land America, A few years back for the origination kick backs, I bet the investigation ended and they paid a fine and got a slap on the wrist. But still continues all through the default industry The Servicers use LPS Services System which is Newtrak. The better you keep newtrak updated with totally unecessary steps the better your score the more referrals for Foreclosure or BK Referrals LPS will send you. Not the Servicers. Then you have to order title through LPS for your title report for the Foreclosure. Then when the posting and pub starts you have to use LPS’s Posting and pub company to Post publish and Cry the sale. If it becomes a REO then LPS will send the referrals for Eviction the REO process. They Control almost everything and have there hand in from beginning to end. The Industry spends more time updated the systems daily events that do not even need to be updated on. Then when you bill the Servicer you have to use New Invoice which is another LPS system that you have to pay to use. The Attorneys barely make any money they have to pay staff to monior and update LPS events. So they can explain why they exist.

  2. LPS has hands in everything. From the orignation of the loan to the banks software they purchased. The outsourcing that is completely unnecessary attorneys must use their system newtrak which is technincally a kick back. You spend more time updating thier sytem then working on file. If receive newtrak a referral you have to use LPS for TSG in the foreclosure and LPS for the posting vendor which is called LPS and then LPS for the REO which they use LPS/Fidelity for the insurance on the new purchase. I have been in the mortgage default industry for 20 years and LPS as ruined the quality of work we are too busy updating thier systems with info they dont really need. Loan begins with LPS defaults all foreclosure and BK attorneys referrals controlled by LPS even agent crying the foreclosure sale is a LPS employee.Then it goes back LPS to REOS through LPS and Begins again..They have there hands in everything. ANTI TRUST?

  3. I have Laura Hescott signing an assignment of mortgage over to Deutsche Bank; she signs as VP for MERS as Nominee for EquiFirst Corporation, April 3, 2009

  4. Google (Lofton v Fidelity). I lost my job , my car and my home after I reported the same illegal actions by Fidelity. FNIS and LPS are companies that are cash cows and they have millions of attorneys and judges on the pay role receiving kickbacks. It is Fidelity’s primary goal to expedite the foreclosure and bankruptcy process so they can increase profits for the CEO’s. Call me I can give you all of the inside details. Adrian Lofton 904-384-6646

  5. Another good article on you blog! I always come back for me. Thanks.

  6. Yeah, It must be done, but there is some change now.

  7. The people should be prosecuted and put in jail and the lawyers perpetrating a fraud should be disbarred but then again, what can you expect a the Nazi organization as the BAR.

  8. from the Home Equity Theft Reporter posted today:

    More On The Use Of Multiple Corporate Hat-Wearing Dummy Vice Presidents By Lenders & Mortgage Servicers In Foreclosure Actions
    The issue of employees of so-called foreclosure / bankruptcy services firms being allowed to sign legal documents (with said documents to be filed in court in connection with foreclosure actions) as officers of multiple, foreclosing financial institutions was the topic of several past posts.

    Examples of how one company, Fidelity National Foreclosure Services and affiliates, of Mendota Heights, Minnesota, has made available dozens of its employees to foreclosing lenders & mortgage servicers to act as authorized corporate officers for the limited purpose of signing necessary documents to be filed in court in the effort to obtain foreclosure judgments can be found in the following documents filed in the Massachusetts land records.

    To access the following five links below, first go to http://www.lowelldeeds.com, then come back to this page and click the following links:

    * 21742/47 (Select Portfolio Servicing; Navigate to page 3 of this 4-page document for a list of “Designated Functions” that the “dummy” vice presidents are authorized to engage in on behalf of the foreclosing entity);
    * 22010/5 (Wilshire Credit Corporation)
    * 22699/93 (HSBC Bank)
    * 22334/84 (Beneficial Massachusetts Inc.)
    * 22224/98 (Household Finance Corporation II)

    With respect to one of the Fidelity National employees whose name appears as an authorized corporate officer for all of the above listed companies (a certain Laura Hescott), a quick search of the online New York court cases reveals that Ms. Hescott receives mention in at least the following four foreclosure actions in her capacity as a vice president of one of the entities having some involvement in the foreclosure action:

    * Deutsche Bank Trust Co. Ams. v Peabody, 2008 NY Slip Op 51286(U) [20 Misc 3d 1108(A)]; June 26, 2008, Supreme Court, Saratoga County, Nolan, J.; (Hescott was identified as vice president of Deutsche Bank, according to the decision);

    * Deutsche Bank National Trust Company v. Harris, 2008 NY Slip Op 30308(U); February 5, 2008, Supreme Court, Kings County, Schack, J.; (Hescott was identified as vice president of Mortgage Electronic Registration Systems, according to the decision);

    * IndyMac Bank, FSB v Bethley, 2009 NY Slip Op 50186(U) [22 Misc 3d 1119(A)]; February 6, 2009, Supreme Court, Kings County, Schack, J.; (Hescott was identified as vice president of both Mortgage Electronic Registration Systems and vice president of IndyMac, according to the decision);

    * Indymac Bank, FSB v Boyd, 2009 NY Slip Op 50094(U) [22 Misc 3d 1112(A)]; January 22, 2009, Supreme Court, Kings County, Schack, J.; (Hescott was identified as vice president of IndyMac, according to the decision).

    Note that in none of these four New York cases is it reflected that Laura Hescott, although signing documents as a vice president for one of the financial institutions, appears to actually be an employee of Fidelity National who is merely out on loan to the institution.

    Thanks to Mike Dillon at GetDShirtz.com for the heads-up on the foregoing information.

  9. It’s about time!!!!! The tide is turning.

    Alina

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