According to the Wall Street Journal, Senator Ron Wyden (D-OR) has sent a letter to
the Department of Justice requesting an investigation of Lender Processing
Services (LPS). The letter, sent
yesterday to Attorney General Eric Holder, alleges that LPS may have used an
improper fee structure for legal services related to the processing of
foreclosures and bankruptcies. This
structure, Wyden says, resulted in double-billing homeowners and mortgage
The Democratic Senator also said that actions
by the firm may have directly led to the mass production of mortgage documents
known as robo-signing. In January LPS
settled a suit with 46 states and the District of Columbia over claims its now
defunct subsidiary DocX engaged in a six-year scheme to prepare and file more than 1 million improper mortgage documents. The former CEO of DocX, Lorraine Brown, pled
guilty in federal court last November to participating in the scheme, part of
the so-called robo-signing scandal, and is awaiting sentencing. LPS agreed to pay $127 million in the state
level settlement and also agreed to pay $35 million to the Department of
Justice in February concerning a federal investigation of DocX.
LPS, based in Jacksonville,
Florida, provides software and other technologies to mortgage lenders and manages
a database of nearly 40 million loans.
It provides frequent reports on loan performance most of which are
summarized and published by MND.
Nick Timiraos, writing for The Journal
said Wyden's letter identified concerns brought to the Senators office by an
unnamed industry professional. Wyden's
staff found the allegations credible after reviewing them with knowledgeable
parties including government regulators.
The letter states that banks agreed to use foreclosure-related legal
services provided by an LPS network of law firms in return for receiving free
access to the firm's mortgage-processing software. LPS would then charge homeowners or mortgage
investors for those services, even though LPS itself was not providing any
legal services. As a portion of a borrowers'
monthly payment is supposed to cover the costs of loan servicing, charging
borrowers or investors for legal services could constitute double billing, the
It also charges that, by "carving off a significant percentage of the monies
that should fund the legal work of law firms, LPS has made it difficult for
firms to operate efficiently." These
practices, Wyden wrote, could have contributed to "devaluing the system's legal
checks and balances and rewarding the quantity of work over its quality, I do
not think it was surprising that robo-signing became common practice."
The Journal quotes Michelle
Kersch, a spokesperson for LPS as calling the letter's allegations
incorrect. "In fact, over the last
several years," she said, "federal and state courts across the country have
dismissed 15 civil cases that were based on the same failed allegations."
Kersch said that LPS doesn't charge or pass any fees along to borrowers, and
that technology and service fees are billed only to parties that use LPS's
products. The company also said that it doesn't provide legal services and that
it has no involvement in setting attorneys' fees.
Timiraos said some of the letter's allegations were included in a
shareholder class action lawsuit filed two years ago by a pension fund for city
employees of St. Clair Shores, Michigan which was originally dismissed by a
federal judge. After it was re-filed LPS
agreed to settle for an undisclosed amount without admitting guilt.
The Justice Department told The
Journal it is reviewing the Senator's letter which also asks whether the
Department had reviewed the LPS business practices and whether Congress can do
anything to increase transparency for fees that accrue when borrowers become