Last week the American News Project put a human face on the economic crisis with a moving video report about a woman named Jocelyn Voltaire facing foreclosure on her home in Queens, New York after she fell victim to a predatory lending scheme. The report mentioned that the foreclosure was being pursued by Litton Loan Servicing, a company tied to Goldman Sachs. Given that much of the economic policy of the United States is being carried out these days by former Goldman executives, including Treasury Secretary Henry Paulson, I was curious to find out more about this firm.
It turns out that Houston-based Litton is a leading player in a field known as subprime servicing. These firms specialize in the handling of subprime (frequently predatory) mortgages in which the homeowner has fallen behind in payments and is at risk of foreclosure. In other words, they are a type of collection agency dealing with those in the most vulnerable and most desperate financial circumstances. Litton services some $54 billion in such loans.
Subprime servicers such as Litton claim their mission is to help homeowners put their mortgage back in good standing. Yet, Litton has frequently been accused of engaging in abusive practices. According to the Justia database, the company has been sued more than 100 times in federal court since the beginning of 2004. In 2007 a federal judge in California granted class-action status to a group of plaintiffs who charged that the company’s late-fee practices violated the Real Estate Settlement Procedures Act. The case is pending. Meanwhile, individual suits continue to be filed. For example, in June homeowner James J. Portley Sr. sued Litton in federal court in Philadelphia for using “false, deceptive, misleading and evasive practices” in violation of the Fair Debt Collection Practices Act (case 08-CV-02799).
Litton has also been accused of being overly aggressive in pressing for foreclosure when a homeowner has difficulty catching up. Last year the Houston Press described the controversies surrounding the company by focusing on one of Litton’s own employees who alleged that the firm had unfairly forced her into foreclosure.
Litton was founded in 1988 by Larry B. Litton Sr., who still runs the firm despite several changes in ownership. In December 2007 Goldman Sachs bought the company for $428 million, plus repayment of $916 million of outstanding Litton debt obligations. The deal was covered in the mortgage trade press, though Goldman, which may not have wanted the wider world to know of its investment, never issued even a routine press release.
Goldman is not the only major bank with direct involvement in subprime servicing (Bank of America’s Countrywide Financial is at the top of the rankings), but the movement of its executives into top federal policymaking positions raises serious questions. Is Hank Paulson’s resistance to measures that would directly help struggling homeowners a conscious or unconscious effort to help Goldman’s Litton operation?
Sunday’s New York Times business section reported that the role of Goldman alumni in handling the current economic crisis has prompted a new nickname for the firm: Government Sachs. Its involvement in the dubious business of subprime servicing suggests that another sobriquet may be in order: Bloodsucker Sachs.