Established Naked Capitalism readers may have noticed that I’ve avoided commenting on the Elizabeth Warren/Scott Brown race in Massachusetts. That’s largely because this is a finance and economics blog, and aside from the fact that the Warren candidacy has led lots of out of state financial firms to pour money into the Brown campaign, the discussion of issues in that particular race hasn’t entered into terrain that would merit a stand-alone post (and Lambert’s able campaign coverage has chronicled their noteworthy dust-ups). And we criticized her decision to run for the Senate; we’ve said repeatedly that there were better uses for her talents and access to media if she wanted to help ordinary Americans.
But in a new post, Adam Levitin raises an issue that warrants more disclosure from Brown. Admittedly, Levitin is an ally of Warren’s, but that does not invalidate the fact set he raises (And before people who have wandered in from Breibart land try talking up the son of Dijongate faux scandal about Warren not having a Massachusetts law license, please read this debunking).
Brown is a real estate attorney, and his clients included area bank and “mortgage companies,” including Fidelity National. Fidelity National was the parent of Lender Processing Services, which was spun off in 2008. We’ve written at length about LPS’s questionable business model. LPS operates the software platform for over 60% of the servicing in the US. This discussion, from a March 2011 post, will give you a feel for what is not right (plenty) about LPS:
Lender Processing Services has played a singularly destructive role in the mortgage servicing industry. The firm not only offered document fabrication services through DocX, a company it acquired and was forced to shut down after the Department of Justice started sniffing about, but is being revealed to be involved in more abuses as far as borrower records and legal process are concerned. Readers may recall that it is also the target of two national class action suits on illegal legal fee sharing which if successful will produce multi-billion-dollar damages.
This abuses matter due to the role that LPS has come to play. It is the biggest player in default services, meaning it acts as the de facto selector and supervisor of foreclosure mills via its system, LPS Desktop, which manages and oversees the work of local law firms on behalf of its bank servicer clients. It also provides the servicing platform for more than half of the servicing industry. And as our two latest examples show, the company clearly places its profits over integrity of records and due process.
The first, per Abigail Field of Daily Finance, comes out of a affidavit by former LPS employee Adrian Lofton, who worked at its subsidiary Fidelity, the mortgage servicing platform that was acquired by LPS. Lofton describes an environment where cost cutting pressures led to widespread abuse of basic security protocols. Employees of his unit had the ability to access the mortgage records of borrowers and alter them; an important control was that each employee had his own login and password and was per corporate policy allowed only to utilize only his own account. Employees were grades and rewarded on speed and on not asking their bosses for help in resolving problems. This devolved into an out of control environment:
109. Towards the end of my employment at Fidelity, my biggest concern was that most of the Associate Team members had gained unauthorized access to the logins and passwordsof their team associates and supervisors for all of the bank servicers’ computers.
110. With this unauthorized access to the Bank’s computers, the Fidelity associates could gointo the banks computer files and manipulate the data.
111. Such manipulation of the bank customer data could include changing entries, reversingtransactions, adding transactions and moving funds in and out of suspense accounts.
112. I was particularly concerned that during “crunch” times when a great volume of work came in during a short time and we were understaffed, Team Associates were cutting corners.
113. There were times when a lot of work would come in at one time and there werepressures to get the work done quickly.
114. Supervisors would tell the Team Associates to do whatever was needed to get the job done.
115. In my experience, the system encouraged Team Associates to cut corners.
116. When an employee cut corners, the employee left out one or more steps that should have been performed and had to make something up
117. The problem caused by cutting corners might not come to light until six months down the road when an attorney asks questions about the billing record.
So get this: employees muck with borrower records in their name or in someone else’s name. You’d expect some errors in a manual process, even more so if employees were under time pressure. Not only is it unlikely that a staffer who had performed a particular task would remember it weeks, let alone months, down the road, it’s impossible to get an accurate reconstruction or hold parties accountable if the casual use of logins means you don’t even know who did what. As Field warned:
Even if some of those banks have dropped LPS since then, were their records ever comprehensively fixed? And what about other LPS clients? Surely they’ve picked up more, as the tidal wave of foreclosures really grew after Lofton left LPS. Indeed, that foreclosure surge surely worsened the problems, since the time pressure on LPS employees can only have gotten worse.
If you’re tempted to feel sorry for LPS’s bank clients, given that they might not even have realized that their contractor was messing up their business records, don’t. Banks hire LPS — and fail to effectively oversee it — for one simple reason: They’re trying to get something for nothing. LPS has risen to market dominance primarily because it doesn’t charge the banks for its work. Instead, it charges the lawyers in its network who foreclose on the the banks’ mortgages.
But the pattern of not caring who did what as long as it fattened the bottom line gets even better. Thought you’d heard everything about robo-signing? One abuse has not been adequately probed. You may recall that there was a bit of excitement about the fact that some robosigners had such visibly different signatures under their name as to point to probable forgery….
If you read the deposition, you will find repeated references to the activities of “surrogate signers”. LPS was so keen to crank out volume in the cheapest possible manner that it wouldn’t even add new robosigners. It instead hired temps and had them forge the signatures of existing robosigners.
The original post contains a ScribD of the full deposition as well as screenshots of particularly damning sections.
We (and others) suspect the reason Fidelity spun off LPS was to shield it from potential liability. And the spotlight has gone off LPS thanks to the mortgage settlement, which gave the biggest servicers an extremely valuable waiver on chain of title issues. Even though LPS was not party to the settlement, LPS was engaged in highly questionable behavior and going after LPS would have been the most expedient route for understanding and proving up the nature and extent of servicer abuses. But that does not exonerate LPS; it merely means the parties that had the best reason to go after it, state attorneys general in states with high rates of foreclosure, have instead decided to pocket their comparatively meager settlement winnings and declare victory.
As Levitin argues:
At the very least, it looks like Scott Brown was riding the mortgage bubble, serving as a cog in the machine…In the first Massachusetts Senatorial debate, Brown said that he thinks character is an issue and that it is the litmus test for being a Senator. I’d certainly like to know more about his real estate practice before concluding that he’s passed his own test.
It shouldn’t be that hard for Scott Brown to clear this up if Levitin’s concerns are overblown. Let’s see how forthcoming he is willing to be on this matter.