FDIC files suit
The Federal Deposit Insurance Corporation (FDIC) has filed a lawsuit accusing Lender Processing Services Inc. (LPS) of negligence and breaches of contract for which they are demanding a jury trial to recoup $154.5 million in losses on behalf of Washington Mutual Bank (WaMu) of which they are now the receiver.
Fox News describes LPS as a company that “helps mortgage servicers manage home loans and has come under fire for the various problems plaguing mortgage servicers, including cases of false affidavits known as robo-signing.”
WaMu falls, FDIC takes over, now filing lawsuits
In the largest bank failure in American history, WaMu was seized by the FDIC in 2008 which facilitated its sale to JP Morgan Chase. The FDIC maintains receivership of WaMu and has filed a lawsuit demanding a jury trial against LPS, seeking to recover $154,519,071.10.
The FDIC alleges that WaMu suffered this loss “as a direct and proximate result of gross negligence” and repeated breaches of contract.
The lawsuit alleges that WaMu hired LPS subsidiary LSI Appraisal, LLC (LSI) in July 2006 as its appraisal branch, wherein LSI agreed it would “conform to federal and state law, regulatory guidelines and all applicable industry standards, specifically including the Uniform Standards of Professional Appraisal Practice (‘USPAP’)” and that LPI would serve as the “gatekeeper” regarding appraisal services provided and would “insure the competency and qualifications of its appraisers, to conduct meaningful quality control review of the appraisals and to police WaMu’s loan staff and act as an intermediary” between WaMu originators and LSI appraisers. The agreement also required LSI to report any “inappropriate contacts or requests’ by WaMu employees regarding appraisals.
LPS allegedly used unqualified appraisers
The lawsuit further notes that despite the terms outlined above, “at least 220 of the appraisal services LSI provided failed to comply with federal and state law, regulatory guidelines, and USPAP.
Further, the FDIC alleges that LSI “used appraisers who lacked the skill, experience and qualifications necessary to perform the appraisals requested” and that their “quality conrol of the appraisals” was “severely inadequate.”
Bottom line of the allegations
The crux of the allegations is that because the appraisals provided to WaMu were so negligent and “contained substantially inflated appraised values” and subsequently “WaMu would not have made the residential mortgage loans at issue and would not have suffered losses on those loans.”
Why was LPS and Fidelity named in the suit?
LSI and LPS were named alongside Fidelity National Information Services, Inc., LPS Property Tax Solutions, Inc. (fka Fidelity National Tax Services), LSI Title Company and LSI Title Agency, Inc.
“The other named Defendants controlled and directed the actions of LSI” therefore, the lawsuit states that they are “directly liable for the damages resulting from the grossly negligent appraisal services provided by LSI.”
LPS responds to allegations
“LPS contends that the services LSI provided satisfied the terms and conditions of its contract with WAMU and were not performed with gross negligence,” the company said in a recent SEC filing. They also note they believe “that any loan losses are not because of appraisal issues, but are due to the quality of underwriting by WAMU, borrowers defaulting and the weakness of the economy after the loans were made, among other factors.”
Some people note that appraisals don’t make a loan good or bad rather simply satisfy a regulatory requirement. LPS spokeswoman Michelle Kersch has stated, “LPS intends to aggressively defend itself against these allegations.”