Law firms may not be reimbursed under the new GSE rules

By Sari R. Updated on 11/12/2012

Law firms that don’t comply with the new Fannie Mae and Freddie Mac default servicing legal parameters after June 1^st of 2013 will most likely have to cover their own out-of-pocket expenses and fees.  The housing agencies gave warning to servicers and their law firms of this on Friday.  The GSEs made announcements that they are currently in the process of dissolving their retained-attorney networks and substituting them with policies, requirements and processes that default law firms must abide by when dealing with Fannie and Freddie loans. 

Servicers who are dealing with these matters now have to choose from a handful of law firms that meet the new GSE guidelines in every matter where the servicer is working with GSE loans.  By June 1^st of 2013, servicers are required to retain qualified law firms to deal with these matters in a way that is in compliance with these rules.

The GSEs will begin to look at servicer recommendations for qualified law firms on the 1^st of March 2013.  Law firms that are already in these retained-attorney networks must follow the same guidelines.

Fannie and Freddie are going to be offering training sessions for legal providers in the month of April 2013 in order to teach attorneys the new guidelines.  Once a firm has completed their training and signs a limited-retention agreement with the agencies, servicers are then able to refer their legal matters to the firms.

As a result of the subprime crisis, the sketchy document handling at several default law firms led to a variety of legal actions regarding servicing legal providers.  Several legal providers were dropped from the GSEs network because of excessive controversy.  These new guidelines are a direct response to these developments.  This change will essentially end the GSEs retained attorney networks and will force servicers to choose qualified firms that abide by the guidelines.

Servicers should peruse the guidelines thoroughly since they have rules for the inclusion of women-owned and minority firms as well as due-diligence requirements that will require servicers to evaluate data from legal providers.

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