Richard Cordray cannot wait until July to acquire enforcement capabilities at the Consumer Financial Protection Bureau. In a way, he wants to finish something he’s already started. Cordray was one of the most aggressive Attorneys General while serving in Ohio at taking on foreclosure fraud. He sued GMAC and got state courts to stop servicers from merely substituting documents instead of re-filing cases where robo-signing was found. Now the head of enforcement at CFPB, Cordray won’t change his approach.

He said his new responsibilities are “in many ways doing on a 50-state basis the things I cared most about as a state attorney general, with a more robust and a more comprehensive authority.” […]

Mr. Cordray said mortgages, credit cards and student loans are high on his enforcement agenda. No decisions will be made until the agency digs into problem areas and sets its “priorities accordingly,” he said. “I don’t prejudge what we’re going to find.”

In addition to banks, credit unions and securities firms, the new agency has oversight powers for thousands of payday lenders, mortgage-servicing operations, debt collectors and other financial companies.

Firms operating on “much more of a wild and woolly basis” than big banks are the most likely source of “aberrant and abusive practices,” he said. “Consumer protection in the financial area has … taken a second place in most of the regulatory bodies, but we’re going to have a different focus.”

I’ve got one place for Cordray to start. There’s a company called Lender Processing Services, or LPS, the leading company helping servicers with their default paperwork through software solutions. Prommis Solutions is another market leader in this area. LPS and Promiss are embroiled in multiple lawsuits, including one in a Mississippi bankruptcy court. The latest complaint shows that LPS and Prommis, who was added to the case late, split fees with foreclosure mill law firms in completely illegal ways. They overbilled the mortgage servicer for actions like filing motions, and then took their cut after paying off the attorneys, who were basically outsourcing the work and taking a fee. The real problem here is that Prommis and LPS than acted in a legal capacity, performing robo-signing and other operations which only an accredited lawyer should:

The actual structure of the arrangements in these transactions is such that with the advent of electronic filings and “e-signatures” most of the filings made in the cases are from documents produced by non-lawyers and filed by non-lawyers without the actual involvement of the attorneys in the filings until such time as a matter is contested or a hearing is needed.

Depending upon how much time the Court wishes the parties to spend “mining” the electronic data of the transactions between the parties, the plaintiffs expect to demonstrate that a substantial majority of the law firm filings are undertaken in such a compressed timeframe from referral by LPS Default to Prommis Solutions to the law firms that meaningful review or involvement by the attorneys who have electronically signed the filings is either clearly absent or highly suspect.

This is because the business model created by the defendants stresses two things and two things only, speed of processing and volume of processing.

The law firm defendants Johnson & Freedman, and every other network firm who has executed such an agreement, owe this Court and the profession an apology.

This suggests a systematic and perpetual fraud on state courts, using non-lawyers in legal capacities, and streaming through foreclosures without any knowledge of the underlying cases. Alan White of Valparaiso University goes into more detail here. Basically LPS creates a loop. The software they sell to servicers refers foreclosure and bankruptcy cases to law firms allied with LPS. They then share fees with LPS, who does the work through illegal document processing and without accredited attorneys.

If Cordray wants to start somewhere, he could look into this illegal scheme whereby mortgage servicers get a hands-off way to outsource their foreclosure operations. That is, if this court case doesn’t bankrupt LPS and Prommis on its own.

David Dayen

David Dayen