GSE servicer alignment expected to speed loss mitigation
[Update 1: Corrects attribution to Fannie Mae's Dorothy Siple] This spring's servicing alignment between Fannie Mae and Freddie Mac emphasizes early engagement and rapid resolution of troubled loans, an economist at the Federal Housing Finance Agency said. The GSE servicing alignment was a key topic of discussion Monday during the first day of a two-day Dallas loss-mitigation conference sponsored by SourceMedia. Some 7 million loans nationally are delinquent or in the process of foreclosure. Analysts also estimate that about 5 million to 6 million loans are underwater, meaning borrowers owe more on the homes then what they are worth. To top things off, distressed sales still make up some 30% of all housing sales, depressing house prices in many markets around the country. The FHFA, as the GSEs' regulator, seeks market stability while retaining human capital, limiting risks and mitigating losses, said Patrick Lawler, chief economist and associate director at the FHFA, who talked about the regulator's goals during the conference. The FHFA wants to put Fannie Mae and Freddie Mac on the right path in what is still an uncertain future as Congress grapples with housing reform and its many complexities, especially as it relates to the pooling and securitizing loans. The alignment, which was unveiled in April, is part of the process to improve the way the GSEs work with the mortgage servicing sector. Lawler noted that the new process has "more incentives and penalties," for servicers, ends dual tracking — a procedure in which a foreclosure and a loan modification are considered simultaneously — and attempts to engage the borrower much earlier in the loss-mitigation process. Part of the goal is to help servicers be more efficient in their loss-mitigation efforts — and to help the GSEs reduce their losses, said Steve Clinton, senior vice president of servicing operations for Freddie Mac. "We are trying to reduce credit losses. We each have thousands and thousands of delinquent loans," he said. The servicing alignment also is designed to provide more consumer care, he said. While some have called the alignment a game changer, Clinton sees it more as a "return to the basics" of what he refers to as "old-fashioned loss-mitigation" strategies. What was unusual, he noted, was that the two GSEs — staunch competitors — sat down at the same table to work out the details. Conservatorship via one regulator for both agencies made that possible, he said. Dorothy Siple, a Fannie Mae analyst, said the new alignment contains "a bunch of benchmarks" that servicers are expected to meet. When the mortgage servicer receives something from the borrower, for example, the servicer is supposed to acknowledge the receipt of the information within three days, a process meant to stem numerous consumer complaints of servicers routinely lose borrowers' documents. "The servicer needs to look to see if the documentation is complete. If it's not, they need to send out an incomplete letter within five days," she said. There are additional benchmarks and deadlines, like how quickly phones should be answered at call centers and how much time is available to review borrower documentation submitted for potential loan modifications. Completed paperwork results in a $500 incentive for servicers, she noted. Timelines also exist for how quickly servicers should contact borrowers when a loan goes delinquent. They shouldn't be waiting more than three days, she said, in high-risk cases. In all, Clinton said he hopes the mortgage servicing industry supports the changes. "We are hoping the industry rallies behind it," he said. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.