An edited version of this post by Roy Oppenheim was first published in US News and World Report's Home Front Blog and is being redistributed on South Florida Law Blog and Newsroom with their permission.
Remember that whole robo-signing debacle where the mortgage lending industry got caught falsifying records in thousands of foreclosure cases? Company employees admitted signing affidavits attesting to the veracity of documents required to push foreclosures through the courts, while knowing full well they had never even checked them out, let alone read through them.
Now, one company caught up in that scandal—Lender Processing Services Inc.—has cut a sweetheart of a deal with federal prosecutors that requires them to pay $35 million in fines, and to promise never to do it again. That fine comes on top of a $120.6 million settlement agreement with attorneys general in 46 states and Washington, D.C. to resolve similar allegations. So far, only one person, Lorraine Brown, former president of defunct LPS subsidiary DocX LLC, has pleaded guilty to criminal charges relating to the six-year scandal. At most, she will serve five years behind bars.
The latest settlement is bittersweet. While LPS arguably dodged a bullet with the settlement, there is a silver lining for homeowners in that the deal also establishes clearer ground rules.
Had a regular Joe or Joanna conducted this scam, you can rest assured he or she would be spending many years behind bars. But in this case, as with many others involving banks and the mortgage industry, it's all about the Wall Street Rule - the notion that Wall Street is so large, so important and so intertwined with the economy, that the government can't allow it to fail, because if it does then we all go down with that ship.
But why let the little guy get away with just a slap on the wrist? After all, LPS isn’t Bank of America or Wells Fargo, they are not critical to sustaining the economy. If they were hung out to dry, Wall Street would not go into a tailspin.
The answer is simple: While LPS isn’t as big as those banks that are too big to fail and too big to jail, they are still so connected to those banks that the Wall Street Rule appears to cover them as well.
While the initial premise of robo-signing was to get these foreclosures through the process quickly, as we know from Neil Barofsky -- the Special Inspector General for TARP, who wrote the book “Bailout” -- had that actually been allowed to happen Americans would have been pushed out into the street with no place to live and no money in their pockets, which would have snowballed into a financial crisis possibly even bigger than the one we had.
[OPINION: Florida's 'Fair Foreclosure Act' Is Anything But Fair]
It also potentially offers the troubled company a fresh start, giving those dealing with LPS more confidence. At least that's the goal. In a press release, LPS president and CEO Hugh Harris called the settlement "a positive step" for the company, which has now dealt with "legacy issues related to past business practices."
Still, although the settlement pulls back the curtain just a bit on what took place behind the scenes in the mortgage industry, LPS light sentence cements the notion that not only is there a Wall Street Rule, but that Wall Street indeed rules.