Thursday, October 14, 2010

F'closure Mills Yield To 'Voluntary Emasculation' To Win Loan Servicing Work; Industry Insider: "Law Firms Have Been Flat-Fee'd Into 'Vendor' Status!"

In a recent editorial, Housing Wire publisher Paul Jackson makes this observation on the relationship mortgage loan servicers have with their attorneys:
  • I’ve seen first hand the sort of nonsense that passes as ‘efficiency’ in mortgage servicing, since I spent years working as part of the industry. I’ve seen bank clients demand that a law firm I once worked for proceed with an eviction prior to the expiration of a given notice period; and I’ve seen line staff at banks threaten attorneys with removing cases should the law firm fail to do their bidding, even if that bidding directly contravened existing laws. (And this was in 2004; I can't imagine what it's like now.)

  • Beyond witnessing it myself, I’ve heard stories over the years from numerous attorneys that practice in the field about the nonsense their clients would demand of them. The insults on top of injury here are as numerous as they are now part of the servicing industry’s very fabric. Attorneys that manage foreclosures often aren’t usually even referred to as legal counsel anymore, insofar as many banking personnel are concerned.

  • The law firms have been flat-fee'd into “vendor” status, instead, no different than whatever vendor is delivering office supplies. And these attorneys are often also subjected to the indignation of having to go through vendor management departments just even to be able to begin working for a given bank. Show me one other industry where this is how legal work gets done.


  • [W]hen banks decided to take the GSE guidelines as literal gospel, requiring that the law firms manage every case exactly to the published timelines or else, things began to change. Non-attorneys placed in management roles at banks and elsewhere were trained only on the importance of timelines, rather than the virtues of legal risk management. Many were thrown into servicing operations with marching orders to ‘manage process’ without really knowing what, exactly, they were supposed to be managing. So everything became about the timeline. And I mean everything.

  • There’s an old adage that says when all you have is a hammer, everything starts to resemble a nail. It applies in spades here. Layer on top of this a surge in foreclosures so large that it has quite literally overwhelmed attorneys and servicers alike.(1) With a series of bank managers that have now been trained to only understand timelines, and a glut of foreclosures now stuck in the system, law firms — ahem, make that vendors — found themselves having to answer to angry bank managers that wanted to know why so many of their files were stuck in “exceptions” and not hitting the timelines that the bank’s computer systems said they were supposed to.

For more, see Foreclosure mess exposes the rot from within.

(1) The foreclosure processing system operated by the loan servicers and foreclosure mill attorneys (or are they now just 'vendors') has been likened by some as 'Lucy on the chocolate factory assembly line' - a reference to the episode of the 1950s "I Love Lucy" situation comedy in which characters Lucy Ricardo (played by Lucille Ball) and Ethel Mertz (played by Vivian Vance) are furiously grabbing chocolates off a fast-moving conveyor belt and stuffing them into their mouths. See, for example:

By the way, for those of you who have never heard of "I Love Lucy" or never saw the referenced-episode that now dates back over half a century, go here to watch the excerpt of Lucy on the chocolate factory assembly line (and watch Lucy and Ethel play the roles of the loan servicers/foreclosure mills, 50+ years ahead of their time - approx. 3 minutes).