The 177,000-member, $1.4 billion GTE Federal Credit Union faces a $51,000 fee from Fannie Mae because it only used foreclosure attorneys the government-backed mortgage giant approved and ordered it to use.
Fannie assessed the fee after a Fannie Mae-owned mortgage that GTE serviced fell into default and then into foreclosure. By itself that would not have generated a fee. But the mortgage took longer to move through the process than Fannie Mae believed it should have taken and, because of that, the housing giant assessed the fee.
But GTE maintains that the only delays the loan faced while moving through the foreclosure process arose not from any mistakes on its part but from Fannie Mae's.
“Essentially, they demanded we change the foreclosure attorneys we used for this loan not once but twice,” said GTE CEO Joe Brancucci. “Those changes and delays added months to the foreclosure process that is already too long in Florida.”
According to Brancucci, the fees arise from a Fannie Mae policy that penalizes mortgage servicers and lenders if one of their loans takes longer than the GSE believes it should to move through the foreclosure process. If a loan does that, Brancucci said, the GSE's attorneys closely examine all parts of it, searching for errors that could have caused the delay and then assesses a fee.
In many cases, particularly in the case of large mortgage servicers whose poor practices have been the subject of widespread litigation, the policy makes a lot of sense, Brancucci said. But when it comes to smaller servicers, such as even large credit unions, the policy in effect makes the credit union waste time, energy and money fighting fees that should never have been assessed in the first place.
Fannie Mae had not returned a call for comment about the policy, but Brancucci said officials with the mortgage giant have supported the policy.
According to Brancucci, Fannie Mae rules dictate the credit union only use attorneys or law firms that it selects and approves in foreclosing loans Fannie owns, but then often changes attorneys or law firms in the middle of the process, forcing the CU to change attorneys as well, adding months to the process.
In this latest case, Brancucci said GTE was first told to use the law firm of David Stern, a lawyer headquartered in Plantation, Fla., whose law firm has been the subject of investigation about foreclosure legal practices. After Fannie Mae abruptly told the CU that Stern was no longer approved, the CU moved to a second, Fannie Mae-approved attorney who was later also disapproved.
Brancucci made the point in a letter to Credit Union Times that both these attorneys had approved and selected both law firms before telling the CU to stop using them in the middle of ongoing foreclosure cases. In these cases, the process had to be restarted, adding months to the foreclosure timeline and making the loan late and leading to the fees.
Brancucci emphasized that the CU does not disagree that foreclosures should be conducted by Fannie Mae endorsed attorneys but doesn't believe the CU should be forced to pay for the mortgage giant's failure to adequately screen and select the law firms it endorses.
In a Jan. 18 letter to Fannie Mae CEO Michael Williams, Brancucci pointed out that while Fannie Mae has never indicated any problems in GTE's procedures, the mortgage giant has violated its own standards.
“In fact, Fannie Mae has not been acting in accordance with its own servicing guide in regards to maximum allowable days between referral of mortgage loans to an attorney to initiate foreclosure proceedings and the date of completion of sale,” he wrote. “Where a maximum of 185 days is indicated, Fannie Mae has been averaging 806, delaying the process for unacceptable periods yet penalizing us for their mismanagement.”
But as much as he is involved in the fight over this particular case, Brancucci also said the entire policy needs to be overhauled. Since the fees are only assessed on foreclosures that run longer than their allotted time, in practice the policy only really effects mortgage servicers in states like New York or Florida, where crowded courts and complicated foreclosure procedures have made the time from default to sale historically long.
“In my opinion, they should make the policy uniform across the country or, otherwise, do something else to narrow its focus,” Brancucci said. “It makes no sense to hold us accountable for things we cannot and could not control.”