As the foreclosure mess continues to ripen (like cheese), it appears that Lender Processing Services’ subsidiary may be the new piece in the puzzle. Following Florida Congressman Alan Grayson (D-Fla.) firing off remarks into certain practices of Docx, the company has announced that it terminated the practice in 2008 of having employees signing affidavits on behalf of an “authorized employee.”
Like the issue that the industry first faced where a MERS employee was authorized to execute assignments on behalf of a servicer/client (usually through a corporate resolution authorizing the MERS employee to be a “special” employee of the servicer) it appears that Docx took the same tack with respect to affidavits. In a statement released by the company, LPS stated that when they “performed this service, affidavits were prepared and provided by the lenders’ or servicers’ attorneys. These affidavits were then executed by LPS consistent with industry practice, under corporate resolution."
As one of the early issues following the collapse of the securitization field, the issue of ownership of the mortgage was called into question due to the structure of MERS and the lack of assignments in a county clerk’s office, as required by statute to allow for notice of ownership and lien of the mortgage. Courts, not familiar with this shortcut in the mortgage business, started to throw out foreclosure actions due to the fact that they did not appreciate the role of MERS in saving time and money by avoiding continuously registering the transfer of the mortgage as it worked its way into securitization structures and sales.
Now, it appears that the outside service provider Docx has been caught in a similar situation of not following regulations/procedures in preparing affidavits required for a foreclosure action. However, unlike the MERS issue, here it appears to be a blatant disregard for proper procedure, and not just a regulatory shortcut. And while Congressman Grayson may just be hopping on the foreclosure hay-wagon (is he up for mid-term election?) it once again goes to the question of the impact of volumize-ing servicing functions.
At between 25 to 50 bps for servicing fees, pressure is always on the management of the servicing organizations to squeeze every drop of revenue by reducing costs. It is why, during the turn-down of the mortgage origination market, people (like Wilbur Ross) started to look at servicing platforms as a good buy or a hedge against the loss of revenue in origination. Controlling the cash flow off of tens and hundreds of billions of dollars of mortgage loans, especially when you could game the system because of the complexities of the Pooling and Servicing Agreement and the distance between the servicer and any investor, looked like easy money. Most investors bought based upon the rating and assumed cash-flow, which is now completely out-of-whack.
Now, it appears to be a curse to be a servicer, rather than a blessing. Beyond being the new dog to kick on Capitol Hill, having to rewrite compliance policies and procedures and instituting serious auditing will increase costs, at a time when cash has become tight at the servicers. And, like the MERS issue, plaintiff attorneys now have a new claim in their delaying filings on behalf of clients. This slow down in the foreclosure process will squeeze servicers even more as they are delayed in receiving reimbursement out of securitization structures.
Once again the continuing mantra is “AND THE SECURITIZATION INVESTOR WILL TAKE IT ON THE CHIN.” At the end of the day, the delay in acquiring the property through foreclosure, to the reduction in the sale price of REO property, to the increased costs of the servicer that will take ahead in the liquidation waterfall all add up to less money to investors.
So, as we look down the barrel of this robo-foreclosure mess, you have to ask yourself one question . . .do you feel lucky . . . well, do you punk??
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