Fannie, Freddie align servicing guidelines for delinquent mortgages
The Federal Housing Finance Agency directed Fannie Mae and Freddie Mac Thursday to align their guidelines for servicing delinquent mortgages.
Previously, the government-sponsored enterprises maintained different requirements for how their mortgage servicers would treat these loans. But the FHFA forced an alignment to push servicers into engaging the borrower as soon as they become delinquent. The foreclosure process cannot begin if the borrower and servicer are working toward solving the delinquency in a good-faith effort, effectively prohibiting the practice of "dual tracking."
Under the new requirements, servicers must engage in a single track for considering foreclosure alternatives up to the 120th day of delinquency, according to the FHFA. Servicers must also perform a formal review of the case to confirm the borrower was considered before starting foreclosure. Even then, servicers are required to continue work with the homeowner on other alternatives.
Not only procedures, but incentives were aligned. Servicers for both GSEs will be rewarded and penalized the same under the new guidelines.
"FHFA's directive to align Enterprise policies for servicing delinquent mortgages should result in earlier servicer engagement to identify the best solution available for homeowners, given their individual circumstances," said FHFA Acting Director Edward DeMarco.
The FHFA said the updated framework will expedite borrower outreach, align modification terms and establish "a consistent schedule of performance-based incentive payments and penalties."
Fannie Mae CEO Michael Williams said the alignment is a major step toward an improved servicer process.
"This initiative will direct servicers to reach families earlier, communicate more frequently and clearly, and provide relief," Williams said. "Fannie Mae fully supports this Initiative, and we remain committed to stabilizing communities and building a stronger foundation for housing."
Freddie Mac CEO Ed Haldeman said the FHFA action will simplify the process for delinquent borrowers.
"Alignment of key servicing practices between our two companies will help servicers achieve these goals by enabling them to streamline their operations and more effectively target resources to distressed borrowers," Haldeman said in a statement. "For example, it will simplify the process for seeking help by giving borrowers one application to fill out and servicers one application to review for all Freddie Mac loan modifications and foreclosure alternatives."
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