Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) has suddenly cut off ties with the two largest foreclosure firms that used to handle the lion’s share of foreclosures in Colorado.

Fannie Mae Freddie Mac Glassman

The national mortgage giant, however, didn’t offer any comment on why it so suddenly terminated its relationship with both firms.

Servicers asked to cease referrals to the firms

The mortgage giant suddenly announced Friday that it will no longer be using the services of two well-known Denver foreclosure law firms – The Castle Law Group LLC and Aronowitz & Mecklenburg, LLP – effective immediately.

Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) has a very strict code of conduct for the attorneys representing them.

Firms influenced foreclosure process

According to Colorado attorney general investigations, Castle Law Group and Aronowitz & Mecklenburg, two of the five foreclosure law firms being investigated, had charged additional amounts for posting legal notices on foreclosed homes largely done through process-service companies in which the lawyers had a financial tie or ownership stake. Both the firms had manipulated and influenced the foreclosure process to make undue profits of millions of dollars at the expense of homeowners and taxpayers.

Fannie Mae decision causes jolt for other servicers

Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA)’s sudden decision apparently caught more than a few servicers off-guard this week, and some were scrambling to ascertain additional available legal counsel in the state.

The Colorado attorney general John Suthers’ investigation of these billing discrepancies from Castle Law Group and Aronowitz & Mecklenburg led to the finding of several county Public Trustees in Colorado overcharging their foreclosure costs. Those costs were then passed on to the banks and then to homeowners. There were also claims of collusion and price fixing among foreclosure law firms in the state as well.  The Attorney General’s investigations helped push Colorado state legislature to create new bills to help homeowners in foreclosure.