FHFA Revamps GSE Legal Referrals, Oversight

by devteam November 13th, 2012 | Share

Freddie Mac and Fannie May have announced newrnrequirements for managing law firms retained for bankruptcies andrndefault-related legal matters including foreclosures, deeds-in-lieu ofrnforeclosures and related litigation involving mortgages loans owned orrnguaranteed by the two government sponsored enterprises (GSEs).  The new rules are being issued at therndirection of the GSEs’ conservator, the Federal Housing Finance Agency (FHFA)rnmore than a year after FHFA’s Office of Inspector General (OIG) found problemsrnwith the GSEs’ oversight of legal firms and FHFA’s oversight of the GSEs.</p

In the report dated September 30, 2011, FHFA OIG saidrnthe found three major deficiencies in the GSE’s Retained Attorney Networksrn(RAN).</p<ul class="unIndentedList"

  • Variousrnindicators could have led FHFA to identify and address the heightened riskrnposed by foreclosure abuses prior to late 2010.</li
  • FHFAsrnplanning and guidance do not adequately address default related legal services.</li
  • FHFArndoes not have a process for the GSEs to share information about problem lawrnfirms.</li</ul

    Under the new rules, effective June 1, 2013, all lawrnfirms selected and retained by servicers to handle GSE Default Legal Mattersrnmust meet the Firm Minimum Requirements and the servicer must submit a form tornthe GSE for review and an objection/no objection determination.  Servicers may begin to send these forms forrnreview on or after March 1, 2013.</p

    Law firms to which the GSEs do not object must enterrninto a contract with the servicer and a limited retention agreement with thernfirm GSEs that sets forth certain key retention provisions with the law firmrnfor each State in which the law firm has received a “no objection”rndetermination.  This agreement willrnrecognize a joint attorney-client relationship between the law firm thernGSEs.  Law firms selected to receivernreferrals must attend GSE new firm training before the agreement is signed.</p

    The new rules set out conditions and requirements forrnmonitoring legal firms, reporting on their performance and terminating theirrnservices.</p

    Among other specific changes mandated in the new rules:</p<ul class="unIndentedList"<liServicers may no longer send foreclosure referrals directly to trustees.</li<liDesignated counsel will no longer determine the beginning and final bidrnat a foreclosure sale.</li<liServicers rather than legal counsel must obtain a valuation from thernGSEs on the collateral property and set forth the foreclosure bid amounts.</li<liAllowable limits for foreclosure and bankruptcy related legal fees arernunder review. Servicers are to followingrnexisting guidelines until the review is completed.</li</ul

    Except with respect to Legacy Matters, law firms thatrnare currently part of Freddie Mac’s designated counsel program are not exemptrnfrom the new selection and engagement process.</p

    Congressman Elijah Cumming (D-MD) requested the OIGrninvestigation in February 2011 following alleged abuses and illegal activitiesrnby mortgage servicing companies including wrongful foreclosures, inflated fees,rnand the filing of improperly executed legal documents related tornforeclosures.   He released a statementrnon Friday in which he said in part, “I am disappointed that it has takenrnFHFA so many years to acknowledge these serious problems and finally developrnthe guidelines that will terminate these networks.  As I review the policies announced today, Irnwill look to see that they will truly ensure that the firms selected byrnservicers to handle foreclosure cases are staffed, compensated, and supervisedrnin a way that will prevent future abuses.”</p

    Cumming said that when the OIG report was issued he sentrna letter to FHFA Acting Director Edward DeMarco requesting additional documentsrnand information regarding these oversight failures. Cummings requested that thernagency “give serious consideration to terminating the existing Fannie MaernRetained Attorney Network program.” rnHe also requested that “FHFA take immediate and decisive action tornremedy these failures and ensure that no additional borrowers suffer similarrnabuses.”

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  • About the Author


    Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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