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 investors.

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 letter says.

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 delinquent.