The National Community Reinvestment Coalition urged lawmakers today to pass legislation immediately to shut down what it characterized as “foreclosure mills” being operated by law firms, racing to kick out financially-troubled subprime borrowers from their homes. The law firms represent mortgage servicers, Wall Street investment firms and lenders. Testifying before the House Financial Services Committee, a NCRC official recommended legislation that provides for 60-to-90 day stays in foreclosure proceedings nationwide to ensure that homeowners situations are “properly assessed prior to facing needless and expensive foreclosure actions that strip equity.” Industry sources that spoke with HW had very strong reactions to the NCRC’s position, calling it a complete mischaracterization of the entire default servicing industry in general and a particular misunderstanding of the role of an attorney in protecting creditor’s rights. “It was only a matter of time until some consumer rights genius got the idea to firebrand the attorneys processing a foreclosure as a culprit,” said a source on HW‘s customary condition of anonymity. “Could they make it any clearer they have no idea what they’re talking about?”
Numerous attorneys interviewed by HW said their work was a vital part of what makes lending possible to begin with, and that a lender’s ability to efficiently recover losses in foreclosure ultimately determines what and how much of a mortgage a borrower will be able to obtain. “This is typical hyperbolic reaction from the very same people who were cheering gains in homeownership the past few years,” said another source, who asked to remain anonymous. “Impeding the progress of our work in creditor’s rights will only worsen the problem, not make it better — if someone can’t afford a loan, better to address the problem now and find the best available solution, even if that solution is walking away from the house.” “If these people understood how special servicing worked, they’d be asking us to do our jobs as expeditiously as possible,” said another anonymous source, an attorney in the industry. “We’re involved only after loss mitigation has failed to yield a solution, when the lender has no choice but to lose $40,000 on average. Our job is to make sure that number isn’t any larger than it has to be.” For its part, the NCRC says it is trying to keep up with the law firms processing foreclosures. The consumer group operates a Anti-Predatory Lending Consumer Rescue Fund and says has been working directly with subprime borrowers to help them remediate troubled loans with lenders and servicers. While it won’t disclose the size or scope of it’s Fund activities, the nonprofit claims its loan workouts have turned into “fast sprints” against law firms involved in the foreclosures. “We are struggling to keep up with these aggressive law firms that operate as foreclosure mills and profit from rushing borrowers to homelessness,” NCRC Executive Vice President David Berenbaum told committee members. “The greed in the legal system is one of the reasons Congress must pass a stay to give us more time to keep families in their homes. Americans who qualify for forbearance agreements or deserve a new loan or loan modification are being foreclosed upon ruthlessly.” In his testimony, Berenbaum called for legislation to establish a national rescue fund to support low-income borrowers and enact a strong anti-predatory law that would strengthen consumer laws, expand regulatory guidance and eliminate abusive, nontraditional loans and bad lending practices.