Freddie Mac Pushes Out Foreclosure Timelines

Pressure to raise servicer spreads may have just gotten a little more intense on Thursday, with Freddie Mac (FRE: 0.65 +1.56%) announcing a huge, mixed bag of changes to its servicing guidelines — including doubling the amount of money it pays for each workout alternative, and lengthening foreclosure timelines in key states. The GSE also said it would start reimbursing servicers for the cost of door-to-door outreach programs, and make administrative changes intended to streamline the workout process.

“We are taking these steps because we want to reinforce the tremendous importance of workouts and reward their use,” said Freddie Mac vice president of servicing and asset management Ingrid Beckles.
“Giving our servicers more time and greater compensation to help troubled borrowers is fundamental to preserving homeownership and maximizing our efforts to minimize foreclosures.”

Tweaking timelines
Foreclosure timelines have been the lifeblood of the servicing industry for decades; and, while many borrowers may have been unaware of it, servicers have long been compensated by the GSE for their annual performance relative to timelines.

But no more. Perhaps the boldest move by Freddie Mac on Thursday — and one that won’t get much press attention — was its decision to eliminate foreclosure timeline compensation altogether for servicers, effective immediately. In other words, servicers will no longer earn a bonus based on how quickly they can foreclose.

If that doesn’t scream “modify more loans,” then the GSE’s decision to double compensation for servicers in completing workouts certainly will. Freddie said it will now pay servicers $800 for a loan modification, $2,200 for a short payoff or make-whole preforeclosure sale, and $500 per repayment plan. Deeds-in-lieu of foreclosure didn’t get Freddie’s same endorsement, however, and will remain at the current incentive level of $250, the GSE said.

The decision to eliminate timeline compensation, however, was only part of a much broader program change rolled out by Freddie; the mortgage finance giant also said that it was increasing its allowable foreclosure timeline in 21 states to a whopping 300 days from last of date payment, and 150 days from initiation of foreclosure, effective on Friday.

Included in the list of 21? California, the epicenter of the nation’s foreclosure mess, of course.

For servicers, news of increased workout incentives came as welcome news; extension of foreclosure timelines, however, did not. The reason? Longer foreclosure timelines mean increased servicer advances, and given that most servicers are operating on 25 to 50 basis points in a servicing fee, pushing out reimbursement timelines means that servicers will feel the squeeze.

A review of the servicer bulletin by HW found that no mention of changes to servicer reimbursement policies accompanied the change in timelines.

The GSE also revised its loan modification guidelines, eliminating a prior requirement that a mortgage must not have been previously modified; the idea here is to allow servicers the ability to re-modify a previously modified loan, and signals capitulation on data showing that many previous loan modifications aren’t sticking.

Freddie Mac also said it will temporarily reimburse the cost of leaving a door hanger up to $15 per mortgage, and up to $50 per mortgage for a door knocking that results in the borrower contacting their servicer — certainly good news for companies like Titanium Solutions and the servicers that use firms like them. Freddie will also reimburse servicers up to $200 for additional fees paid to vendors for door knocking if the contact made leads to a workout, the GSE said.

Related links: full servicer bulletin

For more information, visit http://www.freddiemac.com.