Foreclosure Mills Pocketed $50M From Fannie, Freddie
Sleazy law firms cashed in thanks to the government housing corporations Fannie and Freddie.
In late November, as the Foreclosure-gate scandal spread throughout the country, Rep. Randy Neugebauer (R-Tex.) demanded to know how much money Fannie Mae and Freddie Mac, the wounded quasi-government housing corporations, had paid to multiple sleazy law firms at the heart of the foreclosure crisis. One of the firms Neugebauer had in his crosshairs, the Law Offices of David J. Stern in southeastern Florida, had been the subject of a long Mother Jones investigation in August, which also detailed how Fannie and Freddie gave rise to this unscrupulous and greedy breed of law firms. This week Neugebauer got his response: according to data reviewed by HousingWire, the firms in question received nearly $50 million in legal fees from Fannie and Freddie.
Most of that money, $46 million, came from Freddie Mac, the smaller of the two corporations; Fannie paid the controversial firms $2 million. That's quite a hefty sum for Florida's largest "foreclosure mills," as they're known. But the coziness between Fannie and Freddie and the foreclosure mills doesn't stop there. After all, foreclosure mills wouldn't exist were it not for the creation of the two government corporations. As I wrote in August,
Fannie and Freddie also reshaped the foreclosure industry. Their huge holdings meant they had to deal with thousands of foreclosures annually—even during time when relatively few loans were going bad. In the 1990s, the market expanded into subprime territory to feed the securitization beast, and borrowers began defaulting at higher rates. Hiring lawyers on a case-by-case basis was burdensome, so Fannie and Freddie put together a stable of law firms willing to litigate large bundles of foreclosures quickly and cheaply. They urged these handpicked firms to bring all foreclosure-related services—inspections, eviction notices, sales of repossessed properties, and so forth—in-house. Thus emerged the foreclosure supermarket.
David Stern joined that stable of firms in the 1990s, and was even named Fannie's "Attorney of the Year" in 1998 and 1999. So important were Fannie and Freddie's business to him that he considered them "his babies," according to a former employee.
But as soon as Stern's ship began to sink last year, and the Florida attorney general began investigating his operations, Fannie and Freddie dumped Stern and began using other smaller Florida firms. A number of Wall Street banks cut him out of their foreclosure businesses as well, including Citigroup and Bank of America. Right now, the stock of the publicly traded he helped to start, DJSP Enterprises, a foreclosure processing outfit, is languishing around $.50 and faces delisting from NASDAQ, if it doesn't rebound.