Servicers of government-sponsored enterprise (GSE) loans should expect to see Fannie Mae and Freddie Mac roll out new incentives, timelines and penalties by the end of the first quarter.
Federal Housing Finance Agency (FHFA) Acting Director Edward J. DeMarco, speaking during the opening session of the Mortgage Banker's Association National Mortgage Servicing Conference & Expo in Dallas Wednesday, said the GSEs' timelines for borrower communication will be consistent between Fannie and Freddie. A soon-to-be-released incentive structure will reward servicers for proactive loss mitigation and troubled-loan resolution, and ‘appropriate penalties’ will be designed to encourage the timely liquidation of properties when foreclosure is the only option.
The new guidelines are intended to remove confusion, DeMarco said, and they are the result of the findings of an FHFA working group that is separate from the agency's joint initiative with the U.S. Department of Housing and Urban Development (HUD) to examine alternative servicer compensation models.
Representatives from the U.S. Treasury Department, Fannie Mae, Freddie Mac and HUD also spoke Wednesday morning.
At the GSEs, servicer performance reviews will undergo revision. Jeffrey Hayward, senior vice president of Fannie Mae's National Servicing Organization, informed attendees that the company, desiring increased transparency, is unveiling STAR, a new program that grades servicers holistically rather than on default management alone. Anthony Renzi, executive vice president of single-family portfolio management at Freddie Mac, said the company is trying to build stronger relationships with servicers. Part of that effort includes the retirement of Freddie's tier scoring system and replacing it with a new performance scorecard.
Hayward nonetheless stressed the importance of expediency in terms of servicers' workout decisioning. "Speed matters, and we're expecting speed," he said, noting that Fannie Mae will retroactively review servicers' workouts to determine at which point in the delinquency cycle loan resolutions (e.g., repayment plans, loan modifications or short sales) occurred.
Hayward and Renzi both advocated the adoption of an "ownership model" for loss mitigation, whereby servicers assign single points of contact for individual borrowers.
Renzi, commenting on Freddie Mac's ambition to work more closely with servicers, explained that the company is making strides to reimburse servicers more quickly and implement new imaging capabilities.
The Federal Housing Administration's (FHA) deputy assistant director for single-family housing, Vicki Bott, similarly noted that the agency is trying to work more collaboratively with servicers. In the FHA's case, this means increased training initiatives that go beyond simply mortgagee letters and the agency's handbook. The FHA will be conducting more hands-on training for loss mitigation, Bott said.
The agency will also be more aggressive when it comes to following up on loss mitigation directives. The FHA has stepped up its oversight of servicers, including desk reviews that identify performance outliers to provide "non-enforcement-type feedback." However, enforcement actions will still be very much a part of the agency's oversight protocol. In the FHA servicing market, the credit risk does not transfer to servicers. Nonetheless, the agency expects servicers to service FHA loans to the agency's standards, she said.
Bott and Hayward both emphasized the need for servicers to improve operationally and begin taking more horizontally minded attitudes. Hayward said servicers need to break down the silos that exist among departments, so that collections, loss mitigation and foreclosure departments, for example, present unified messages to borrowers.
Servicers must also re-establish the credibility of the foreclosure process, which was immeasurably harmed by last year's robo-signing scandal, Hayward said. If the industry is unable to ensure stakeholders that their foreclosure decisions are sound, local jurisdictions will only create new, varied and costly laws, he explained.
Darius Kingsley, deputy chief of the Treasury's Homeownership Preservation Office, said that even though the low-hanging fruit for loan modifications has been exhausted, the Treasury's priorities include increasing participation in its many programs, including Making Home Affordable. He explained that the Treasury's HFA Hardest-Hit Fund, which funds dozens of state-level programs administered by state housing finance agencies, "have to be successful."
Kingsley also encouraged servicers to search for cases of imminent default. Recognizing imminent default is not easy, he conceded. Part of the reason the industry has been slow to take actions on loans prior to default, he added, may be servicers' "overly conservative legal counsel," which advise against such actions for fear of borrower lawsuits.
