Lawmakers question Fannie on 'foreclosure mills'

By Brady Dennis
Washington Post Staff Writer
Saturday, September 25, 2010

A trio of congressional Democrats is demanding to know why government-backed mortgage giant Fannie Mae has entrusted many of its foreclosure cases to Florida law firms that stand accused of fabricating or backdating numerous court documents.

These so-called "foreclosure mills," essentially law firms that specialize in representing lenders while churning out foreclosure suits quickly and efficiently, are under investigation by the Florida attorney general and are running into legal challenges in other parts of the country.

According to the letter from three House Democrats - Financial Services Committee Chairman Barney Frank of Massachusetts and Corrine Brown and Alan Grayson of Florida - several firms facing scrutiny represent Fannie Mae both in foreclosure suits and in the company's pre-filing mediation program, which is designed to help borrowers and lenders talk through possible alternatives to foreclosure.

"In other words, Fannie Mae seems to specifically delegate its foreclosure avoidance obligations out to lawyers who specialize in kicking people out of their homes," the group wrote Friday in a letter to the company's chief executive."The legal pressure to foreclose at all costs is leading to a situation where servicers are foreclosing on properties on which they do not even own the note," they added. "This practice is blessed by a legal system overwhelmed with foreclosure cases and unable to sort out murky legal details, and a set of law firms who mass produce filings to move foreclosures as quickly as possible."

The lawmakers urged Fannie Mae to remove any "foreclosure mills" under investigation for document fraud from its attorney network. In addition, they argued that the mortgage giant should put in place guidelines that allow foreclosures to proceed only when the legal right to do so is clearly documented.

"Why is Fannie Mae using lawyers that are accused of regularly engaging in fraud to kick people out of their homes?" the group wrote. "Given that Fannie Mae is at this point a government entity, and it is the policy of the government that foreclosures are a costly situation best avoided if there are any lower cost alternatives, what steps is Fannie Mae taking to avoid the use of foreclosure mills?"

In addition to the investigation in Florida, other states such as Iowa and Texas have begun their own inquiries. Those actions come as Ally Financial this week temporarily halted evictions on foreclosed homes in 23 states amid questions about whether a prolific document signer had verified the accuracy of court documents.

Asked about the congressional letter, a spokeswoman for Fannie Mae said Friday that "we have received the letter and will respond to the questions raised."

Staff writer Ariana Eunjung Cha contributed to this report.

© 2010 The Washington Post Company