Law firms not in compliance with Fannie Mae and Freddie Mac new default-servicing legal guidelines after June 1, 2013, could find themselves covering their own out-of-pocket expenses and attorneys fees.
The GSEs warned servicers and their associated law firms of this development Friday. The housing agencies noted in public announcements that they are now in the process of dissolving their retained-attorney networks and replacing them with a series of requirements, policies and processes that default law firms must follow when assisting servicers on Fannie and Freddie loans. Servicers dealing with GSE matters are now required to select and retain law firms that comply with the new GSE guidelines in every jurisdiction where the servicer is handling GSE loans.
By the June 1, 2013 cut-off date, servicers must select and retain qualified law firms to handle these matters in a manner that complies with the rules.
On March 1, 2013, the GSEs will begin responding to servicer recommendations for law firms that are qualified to handle Fannie and Freddie mortgages. Law firms already in Fannie Mae and Freddie Mac's retained-attorney networks are required to follow the same approval procedures and to follow the same overall guidelines, the GSEs said.
The existing provisions guiding providers of legal servicers will remain in effect until the June 1 cut-off date.
Fannie and Freddie will be offering training sessions for legal providers in April to inform attorneys on the new guidelines for law firms. Once a firm has completed the training and executes a limited-retention agreement with the agencies, servicers can then refer Fannie and Freddie-related legal matters to the firms.
In the wake of the subprime crisis, the shoddy document handling at a few default law firms led to multiple legal actions against default servicing legal providers. The controversies prompted the GSEs to drop certain legal providers from their attorney networks.
The new guidelines are in response to those negative developments.
The change effectively ends the GSE's retained attorneys networks, forcing servicers to find qualified firms that comply with the guidelines.
Servicers should read the guidelines thoroughly since they include specific rules for the inclusion of minority and women-owned firms as well as due-diligence requirements that require servicers to collect and evaluate data from legal providers to ensure compliance.