The Treasury Department's white paper on the future of housing finance released Friday lists exactly what the Obama Administration would like to see changed in mortgage servicing reform. A standardization of practices and documentation will clear much of the procedural trouble facing the market, the administration hopes, beginning with clear title creation and the potential right to foreclose. In January, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, announced an initiative to develop a new mortgage servicing standard for the industry. The Treasury and the Department of Housing and Urban Development will be working closely with the FHFA in working towards this reality. "The Administration supports several immediate and near-term reforms to correct problems in mortgage servicing and foreclosure processing and help prevent their recurrence," the Treasury said in the white paper. The Treasury said it will target servicing compensation structures, and will work to move the flat fee into something that adjusts to reflect the amount of work needed for delinquent loans. This, the Treasury said, would "help ensure servicers are appropriately incentivized to invest the time and effort to work with troubled borrowers to avoid default or foreclosure." But the Treasury also said it would reduce conflicts of interests between holders of first and second liens. Mortgage documents, it said, should disclose second liens and define the process for modifying them if necessary. "This will prevent a second lien from standing in the way of a first lien modification and help prevent avoidable foreclosures," the Treasury said. "Finally, we should consider options for allowing primary mortgage holders to restrict, in certain circumstances, additional debt secured by the same property." While the FHFA said servicing reform may not appear until 2012, some firms are already making changes. Bank of America (BAC), the largest servicer in the nation, split its servicing department in two last week, leaving one to focus on performing loans and the other to service delinquent ones. In a statement from Acting Director Edward DeMarco, the FHFA says it is committed to the changes set forth by the Treasury white paper. Indeed, many of the mortgage servicing reform initiative echo the current internal changes already happening at the FHFA, he indicated. "The work of FHFA is consistent with the Administration’s focus on stronger underwriting and pricing, and the re-introduction of private capital," DeMarco said. Write to Jon Prior. Follow him on Twitter: @JonAPrior