Who determines foreclosure fees?

• Fannie Mae and Freddie Mac control the market
• They largely set the fees and appoint the foreclosure mills
• Can it be long before Congress regulates this further?

In days gone by lawyers quoted to get a job done. They also sometimes adjusted their fees down to help stretch a widow’s mite, or for a worthy cause. These days we all know that law is a business just like real estate or undertaking – although thankfully competition does still exist, these days shopping for a lawyer is like comparing the price of fried chicken at different outlets of the same firm.

We know what chicken costs, what is a fair foreclosure fee? As the volume of work stacks up, the big players on the stage including GSE’s Fannie Mae and Freddie Mac are beginning to muscle in and protect their rights, and those of the consumers who they represent as well. After all, the victims of foreclosures are supposed to pay the costs – surely, someone somewhere should fix a rate for this?

Those who expect the costs of a foreclosure action to comprise just legal and court filing fees are wrong. Other costs include property insurance, title searches, home ownership association fees, maintenance issues, outstanding taxes and more. In many cases lenders are legally entitled to add these to past due amounts, making it even harder for a delinquent borrower to catch up with their payments. Unlike their colleagues in other parts of the legal profession, foreclosure lawyers are often bound by the schedule of flat fees prescribed by GSE’s Fannie Mae and Freddie Mac.

 “For us, it doesn’t matter who the client is, even if it isn’t Fannie or Freddie,” a leading foreclosure lawyer told me yesterday. “We know we’re only going to be able to claim whatever that flat fee schedule they set says we can claim, since other investors tend to employ whatever the GSE fee caps are.”

The market dominance of the two mortgage giants means that they are in control of much of the foreclosure action too. They both have established networks of preferred foreclosure lawyers in every State, and frequently strongly suggest whom loan servicers should appoint. The favored few have mushroomed virtually overnight into what the media like to call foreclosure mills. The corner office has become an office tower with rows of clerks processing foreclosure paperwork with as much sympathy or interest as a seasonal worker packing fruit.

“Like it or not, the GSEs have created a flat fee structure for legal work,” a consumer watchdog told me. “That structure rewards those attorneys that understand how to generate economies of scale, who know how to push volume, and who can identify areas for process automation.”

Not every lawyer likes the idea. Will it be long, though, before Congress closes the loop and sets a scale of fees? News brought to you by www.foreclosureconnections.com.