By Marian Wang, ProPublica
The unfolding foreclosure scandal just keeps expanding. Scrutiny first fell on the “robo-signers” who rubber-stamped banks’ foreclosure paperwork, but they’re one of the many players who may have contributed to the mess.
To help sort it all out, we’ve drawn up a cast of characters. Let’s start with the basics:
Loan Originators/Mortgage Issuers – Banks make mortgage loans to homeowners, which homeowners must repay. The home serves as collateral in case the borrower defaults on the mortgage.
Mortgage Servicers – Mortgage servicers collect mortgage payments and foreclose on delinquent loans. These are usually the nation’s biggest banks, which all have mortgage servicing units.
As we’ve noted, these servicers have also been charged by the federal government with helping eligible homeowners avoid foreclosure through the government’s Making Home Affordable loan modification program.
The discovery of robo-signing (see our entry for robo-signers below) by employees at major servicers — including GMAC, Bank of America, JPMorgan Chase and Wells Fargo ($) — has initiated a joint investigation by the attorneys general of all 50 states. GMAC, Bank of America, JPMorgan Chase and Litton Loan Servicing, a mortgage servicer owned by Goldman Sachs, have all temporarily halted all or some foreclosures and are reviewing procedures. Wells Fargo, which the Financial Times has also flagged as using robo-signers, so far has not halted foreclosures.
Other contractors – Lender Processing Services, as we’ve noted, helps servicers manage data. When loans fall into default, servicers sometimes transfer the loan information to these processing firms, effectively outsourcing management of the foreclosure process to companies like LPS.
LPS is one of the largest firms doing such work. It has been accused in court of being involved in illegal fee-splitting arrangements with law firms it hires, though an LPS spokeswoma told the Journal that the allegations are false, and that mortgage servicers decide which law firms to hire.
A subsidiary of Lender Processing Services is currently the subject of a federal probe into how it handled foreclosure affidavits. LPS has acknowledged it once had problems, but says they were quickly addressed.