Former LPS Employees Allege 30% to 78% Error Rate in Borrower Mortgage Records

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5.20.2011 City-of-St-Clair-Shores-Employees-Retirement-System-v-LPS-et-al-Amended-Complaint-May-18-2011

Editor’s Note: This is really so simple. There wasn’t an error rate at all. It was simply the act of creating aesthetic reproductions of something that looked like a legal document. Nobody cared what was on it — that would be left to the lawyer, if necessary to explain away. Why? Because they could get away with it. Why did they need fabricated, forged and adulterated documents — well, simply because there were no real documents because the transaction they were committing to paper never happened.

Former LPS Employees Allege 30% to 78% Error Rate in Borrower Mortgage
Records, Contradicting Banker/Regulator Cover-Up
‎Today, ‎May ‎20, ‎2011, ‏‎2 hours ago | Yves Smith
One investor said that every time he looked at corporate misconduct,
“No matter how bad you think it is, it’s always worse”. Lender
Processing Services is proving to be a classic illustration.

The City of St. Clair Shores Employees’ Retirement System is the lead
plaintiff in a class action lawsuit against Lender LPS that was
amended and expanded yesterday. The suit is against the company and
its three top officers, charing them with violations of Federal
securities laws with the intent of inflating the company’s revenues
and stock price.

City of St. Clair Shores Employees’ Retirement System v. LPS et al.
Amended Complaint May 18, 2011

Even though the filing is very long, the first third, which provides
detailed descriptions of LPS’s purported misconduct, makes for
gripping reading even for those who have been on this beat a while.
Later on, it cites various media sources to track increasing public
recognition of what LPS was up to, and NC is quoted at some length.

The filing relies heavily on affidavits by 17 confidential witnesses,
all former LPS employees, some of them supervisory level. It is thus
able to allege that bad practices were widespread and clearly designed
and driven by top management.

The document goes through a detailed account of firm’s use of
robosigners, surrogate signers (aka forgers) and its document
fabrication service, DocX. While this may seem to be old hat, some of
the details are nevertheless intriguing (management at least bothered
to try to select forgers based on their ability to make signatures
that resembled the original; anyone who questioned whether this
activity was proper was fired within a week). More important, this
lawsuit does serious damage to the claims of bank defenders (the
latest being Karl Rove in the Wall Street Journal) that foreclosure
abuses were merely about cutting corners and everyone who was
foreclosed on deserved it. But as we’ll see shortly, the underlying
records were often corrupted, thus calling into question whether the
foreclosure actions really were correct. Remember, LPS’s reach is
wide. 14 of the 15 biggest loan servicers are its clients and every
one of the 50 biggest banks use some of its services.

Moreover, the suit also repeats the charge made in other suits, that
the LPS business model was built on the illegal sharing of legal fees,
and goes even further, alleging that LPS exercises so much control
over its “network” attorneys that it was engaged in the unauthorized
practice of law.

But the new and more troubling material is the mess LPS has made of
bank records. LPS employees were given password controlled access to
borrower payment records and could and did alter those accounts. These
passwords were routinely and widely shared, in contravention of good
practice. And since everything at LPS was organized around maximizing
throughput rather than doing anything correctly, the errors were
widespread:

LPS employees were rewarded for their speed, and this resulted in the
violation of security protocols and significant and pervasive errors
in the default services that they were providing (e.g., the
application of mortgage payments to incorrect accounts). Even when
these problems were discovered by the Company’s internal auditors, LPS
swept them under the rug. Indeed, LPS knowingly concealed errors in
files from clients, network attorneys, and courts to keep clients
happy and to ensure that a finger could not be pointed at LPS.

Now consider the question of the integrity of borrower records.
Because LPS was so casual about password control, a large number of
employees could and did:

….access mortgage records of borrowers and alter them by changing
entries, reversing transactions, adding transactions, and moving funds
in and out of suspense accounts.

And the company was not terribly concerned about accuracy:

There was a huge volume of ledgers that had to be created and problems
in loan files that had to be researched and unraveled by CW
[Confidential Witness] 16 and his colleagues. These problems included,
among others, missing payments, misapplied payments from other loan
files, and payments that should have been attributed to other loans…

CW16 stated that they were “only allowed to look at an issue for two
minutes, or five minutes tops.” His supervisors and managers did not
want CW16 and his fellow employees to spend time on any loan unless it
was incredibly complex. However, they frequently could not finish it
within five minutes. According to CW16 “a lot of people didn’t
understand the financial side and just winged it.”

CW16 estimated that 20% of the motions for relief of stay (a filing to
allow the bank to foreclose even though the borrower is in a Chapter
13 bankruptcy) were incorrect. This is markedly above the 10% level
mentioned by the US Trustee in a Gretchen Morgenson article last
weekend (although his comment could be read to allow for even higher
rates).

If you think this is bad, the level of errors in borrower files is worse:

According to CW16, on top of the 20% of files with phantom referrals,
approximately another 35% of files had some problems in them. Those
problems varied, and included among others, an ARM that had improperly
adjusted up, a failure to properly account for a borrower’s principal
and interest payments, and a failure to properly attribute payments
between pre-petition and post-petition that led the banks to try to
collect pre-petition obligations they were not permitted to pursue.

Note that the nature of these errors is serious, and from what we’ve
seen in various lawsuits and in the press, the numbers are often
large, and that’s consistent with the US Trustee’s findings.

Another employee thought the error rate was even higher:

Not only did the Company reward speed over accuracy, it also required
employees to hide LPS’ errors no matter what the ramifications.
According to CW2, who was responsible for auditing bankruptcy files
and determining whether LPS had done its job correctly or incorrectly,
the attitude at LPS was that LPS “was not paid to audit files in
bankruptcy.” This was the excuse used internally to justify performing
only a minimal effort and ignoring conflicting information or errors
in files.

Moreover, CW2 explained that when LPS did an audit and discovered that
LPS had made a mistake that led an LPS servicer client to present
false information to a court, LPS would not let its employees “point
the finger at LPS.” Indeed, CW2 explained that there was a known and
openly discussed policy during his entire employment at LPS of “not
fully disclosing what is known, what is being done and what they are
finding.” These details were not disclosed to clients, borrowers or
the courts. This policy was openly discussed during department
meetings

CW2 explained that the end result of these practices is a “three-year
time bomb” waiting to explode. Indeed, he explained that problems
existed in many LPS loans, and he “knows there are mistakes now” that
are still being concealed from clients and courts. He stated that:
“out of 100 files, I guarantee 78 are incorrect.” The errors ranged
from adversary proceeding violations, incorrect agreed orders, missing
payments not accounted for, and escrow issues such as clients
escrowing on non-escrow loans. As a result of these errors, CW2
explained that LPS was “messing with people’s homes.” Indeed, CW2
explained that “people were doing everything they are legally required
to do but losing their homes anyway because of errors.” When this
former employee explained to his supervisors that LPS’ errors were
putting borrowers at risk of incorrectly losing their homes, the
response was “[d]on’t worry about that, it is not our department.

It’s easy to become jaded over banking industry abuses, but stop a
second and consider what this means. To improve its profit margins,
the company at the heart of the mortgage servicing industry ran
roughshod over everything it touched, including the accuracy of
borrower records. And we have bank regulators like the industry lapdog
the Office of the Comptroller of the Currency (which John Carney
correctly calls “the worst banking regulator in the world” and Simon
Johnson says should be abolished) continuing to defend the garbage in,
garbage-out process of its recent servicer abuse whitewash Foreclosure
Task Force. As we’ve pointed out repeatedly, it failed to do any
verification of the accuracy of the servicers’ records, when evidence
of servicer fee abuses (pyramiding fees, junk fees) plus LPS-created
problems (such as the failure to remove certain types of charges that
are impermissible in bankruptcies) means the largely clean bill of
health given by the officialdom is utterly bogus.

The banks and the regulators desperately need to maintain what
increasingly looks like a fiction: that all foreclosures are
warranted. Because banks process large volumes of checks and credit
cards with a high degree of accuracy, they get the benefit of the
doubt as far as how they keep other accounts. So it’s easy for the
industry to assert that they are ever and always right. And even
allowing for a considerable amount of bank errors, it is no doubt also
true that the majority of foreclosures are probably warranted. Many
people have suffered income losses so large that they are hopelessly
under water. But borrower defense attorneys have long alleged that a
high percentage of the cases they represent are servicer driven
foreclosures, and the LPS and US Trustee revelations make these claims
seem far more credible than they might have a few months ago.

It’s deeply offensive when we have officials like the acting
Comptroller of the Currency John Walsh provide cover for this
deep-seated corruption as he did in a speech yesterday:

Fortunately, we found relatively few cases in which a foreclosure
should not have proceeded: although a small number of borrowers were
entitled to protection because of a modification in process,
bankruptcy filing, or military status, all foreclosed borrowers in the
sample were seriously delinquent. And while the sample was small, I
don’t expect to see much change in those proportions.Our mortgage
metrics project, which captures loan-level data on 63 percent of all
first-lien mortgages in the country, found that 94 percent of
borrowers foreclosed upon in 2010 were at least six months past due on
their payments.

It’s easy not to find anything if you don’t verify underlying
processes and check for data integrity. And if you think it’s been
hard for the banks to wean themselves of robo-signing, imagine what it
will take them to fix this mess. It should be no surprise that bigger
and better PR is their preferred remedy (I’m told Karl Rove does
nothing unless he is paid).

If these allegations are proven to be accurate, this misconduct ought
to be criminal. And I’m afraid, like so much of the damage banks have
done to citizens and communities, this too will prove not to be.


Jake Naumer

19 Responses

  1. This seems like a good place for this post.
    Checking out “Ph.D MARC J. SEIFER HANDWRITING EXPERT on ANDREW HARMON SIGNATUR” on Foreclosure Hamlet: http://ning.it/kCAdcT

  2. saveamericaone

    Good question. And, check prior discharges — LPS number – anyone???

  3. The ‘warehouse lending’ cashiers check drawn upon ‘Deutsche Bank Trust America’s, account holder DBT Co LTD, Remitter Reference:
    Loan# LPS NF Loan
    c/o Wells Fargo Asset Securities Corps
    Frederick MD

    So here is what I see and all LL’s can help pull together.

    Could ‘LPS NF’ mean Wells Fargo Funding in agreement with (3rd Party appears to be DB Structured Products Inc recorded on MERS?) and Wells Fargo Asset Securities Corp, as Depositor, for Master Servicer – Wells Fargo Bank NA, did close Origiantion transactions 6/5/2006 and LPS NF notice in remitter means LPS did what? Create Check.

    Means that MERS was a 3rd party company, sole purpose electronic database off-site of the ‘gang’ to record transactions processed by LPS

  4. OH—YOU CAN STILL FILE A PROOF OF CLAIM AND AN ADVERSARY PROCEEDING UP IN THE NEW CENTURY MORTGAGE & HOME123 CORPORATION BANKRUPTCY CASE 07-10416 (CHECK IT OUT IN PACER).

    AN ADVERSARY PROCEEDING IS A LAWSUIT WITHIN THEIR BANKRUPCTY.

    CONSULT AN ATTORNEY PROMPTLY.

    TWO PRO SE’S SETTLED IN CASH FOR OVER 60k EACH.

  5. BREAKING–VERY IMPORTANT FOR ANY NEW CENTURY MORTGAGE OR HOME123 CORPORATION VICTIM—-

    EVEN THO THEY ARE STILL IN BANKRUPTCY THERE WAS A HEARING AND ORDER TODAY.

    BOTTOM LINE—EVEN THO THERE IS A BKR STAY IN PLACE YOU CAN DO A QUIET TITLE ACTION IN YOUR RESPECTIVE STATE COURT WITH THEM NAMED AS DEFENDANTS. YOU JUST CANNOT GO FOR DAMAGES AGAINST THEM WHILE THEY ARE STILL IN BKR.

    THIS STEMS FROM SOME 2008 ORDERS BY THE JUDGE IN THEIR BKR. THESE ORDERS WERE NOT REVEALED TO ANY PRO SE’S WHO ARE UP IN THEIR BKR FIGHTING THEM. IN HEARING AFTER HEARING, THIS WAS CONCEALED.

    JUST BECAUSE THIS ORDER NAMES MARKS, IT HAS TO APPLY TO ALL OF US.

    http://www.scribd.com/doc/56277042/YOU-CAN-GO-FOR-A-QUIET-TITLE-AGAINST-NEW-CENTURY-IN-YOUR-RESPECTIVE-STATE-CASES-NC-Order-May-25-2011-Re-2008-Global-Order-Relief-From-Stay

  6. Thank you Abby

  7. LPS seems to permeate thrughout this mess. Do we have any more whistleblowers? CW2 seems to be in the bankruptcy area–what about other areas? LPS seems to operate like a debt collector. Their employees are taught to operate in violation of the law and fired if they don’t obey. Unfortunately, quite a few American corporations operate this way. I know some law firms do.

  8. BREAKING NEWS—CALIFORNIA AG SUBPOENAS LPS—BROAD NEW INVESTIGATION BY KAMALA HARRIS

    http://www.scribd.com/doc/56255063/LPS-SUBPOENAED-BY-ATTORNEY-GENERAL-OF-CALIFORNIA-KAMALA-HARRIS-MAY-2011

  9. Elizabeth Warren Called A liar and Facebook fans support her.

    http://www.huffingtonpost.com/2011/05/25/elizabeth-warren-patrick-mchenry-facebook-liar_n_866617.html

    NEVER AGAIN

    Not one mention on this blog about California’s Attorney General news conference. How do we deal with it?

    http://www.latimes.com/business/la-fi-mortgage-fraud-20110523,0,1196882.story

  10. A Must Read!

    Has anyone heard about this group of homeowners out in Hollywood California who are producing a Documentary about the whole foreclosure mess,
    called Smoke and MERS?

    This sounds interesting!

    I agreed to tell my story in the documentary.
    They have some info on there website at http://www.somkeandmers.com

  11. neidermeyer,
    I’m looking for verification of employment for a certain individual who I believe worked for LPS … if you can help please email me at mrsdiamond@msn.com 🙂

  12. If I happened to know someone who worked at IT at LPS what documents would be the ones to request? Or is enough out already?

  13. Hey Neil-
    Read this last week, but loved reading it again. LPS/DocX, who did they get their orders from, Daffy Duck?

  14. I just spent five hours at the LA recorders office. The multiple Grant Deeds of various property’s which I already obtained copies of, (and others have too,) are now altered. They have been photoshopped to hide the evidence of the white-out on them. The originals will show it still, but it is no longer apparent on the copies. I feel like I am the only one in the world that finds this corruption so against our county. My family is against me, but I can prove these facts. I might be crazy, but the facts are what they are. I just wanted to seal my court record and get a marital settlement, and walk away. I hate this house. I do not want to continue looking for the truth, and I do not want see how corrupt and perverted these people who say they believe in God and Country are. Where is my America?

  15. Wait a minute. The writer says “found relatively few cases in which a foreclosure should not have proceeded” due to being seriously delinquent. So you think 78% of documentation could be incorrect, yet the reporting of delinquency IS correct. Wrong! All the while homeowners are paying ON TIME, the payments aren’t even being applied to the mortgage but rather to bogus fees, wrongly set up impound accounts and erroneous penalties. Many homeowners were NOT delinquent, yet are being reported delinquent for months if not years. I hope the writer realizes much of the time homeowners are NOT seriously delinquent, if delinquent at all. I know, because I was one being wrongly reported as delinquent!

  16. IN THE MEAN TIME RECONTRUSTCO BOA FORECLOSES ON APPROXIMATELY 25 HOUSES A DAY IN LOS ANGELES COUNTY ALONE.

  17. This is not only about fabricated documents. This is also about misapplication (to put it mildly) of payments– such that borrower in default — before they ever even defaulted.

    But, again, this is a lawsuit on behalf of security investors — which will drain insurance pockets before homeowner victims are ever even heard. Nothing will be left for the real victims — homeowners.

    Frankly, in class actions, the security investors will likely see little in monetary damages. Class actions — created for law firms.

  18. before all the fraud at Lender Processing PS Docx surfaced, I had writen a simple letter to William P Flley CEO of Fidelity National Title, former chair of LPS Docx “what went wrong at Fidelity National Title that your New York attorney Thomas P Malone finds himself fighting for a Forged Deed?”

    Their answer to me was “…it is proper…”

    N ow anyone can see why Foley thinks forgeries are proper!!! I can’t wait to see Foley indicted.

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