(Adds details, remarks from Democratic lawmaker)
WASHINGTON Oct 18 The regulator for Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) said on Tuesday it had directed the two mortgage firms to stop using attorney networks that were implicated in the so-called robo-signing scandal.
The Federal Housing Finance Agency said it will now allow mortgage servicers handling loans backed by Fannie Mae and Freddie Mac loans to choose their own lawyers to deal with the paperwork, as opposed to requiring them to select attorneys from a list the two firms provide.
The law firms retained by the government-sponsored enterprises now will have to meet "certain minimum, uniform criteria," FHFA said in a statement.
Some mortgage industry employees, including law firms employed by Fannie Mae, had previously signed documents they had not read and used fake signatures on paperwork in foreclosure cases across the country. The practices, known collectively as "robo-signing," resulted in a suspension of foreclosures last fall.
"These efforts will lead to greater transparency and benefit delinquent borrowers who become subject to the foreclosure process," the FHFA said of the new directive.
Representative Elijah Cummings of Maryland, the top Democrat on the House Oversight and Government Reform Committee who had urged an end to current practices, welcomed FHFA's announcement but said he wanted to see specifics.
"I remain concerned ... that FHFA has not provided specific details about how mortgage servicers will select and oversee law firms to ensure that abusive behavior is prevented," he said in a statement.
In a report last month, the FHFA's Office of Inspector General had found that Fannie Mae did not sufficiently track its network of law firms. The report found that Fannie and its regulators were alerted to problems with the retained attorney network as early as 2004, but failed to stop the abuses.
The regulator did not begin to act on illegal activities related to mortgage documents involving Fannie Mae's network until mid-2010, despite "multiple indicators of foreclosure abuse risk prior to 2010 that could have led FHFA to identify and act earlier on the issue," the report found. (Reporting by Margaret Chadbourn; Editing by Padraic Cassidy)