A recent article for Fannie Mae's Housing Industry Forum makes the point
that when it comes to the new servicing rules which go into effect today,
Fannie and the Consumer Financial Protection Bureau (CFPB) are on the same
page. The new rules were promulgated and
will be enforced by CFPB and Jeff Bounds, writing for Fannie Mae, says it can't
give servicers advice on how to comply with them. However, the company's own servicing
standards are being updated to more or less mirror those of CFPB.
In June 2011, even before CFPB was up and running, Fannie
Mae and Freddie Mac (the GSEs) issued new standards for their own servicers. These standards specifically dealt with servicing
the GSEs' delinquent loans, managing them, helping to prevent defaults, and
setting timeframes for handling foreclosures. The standards require more consistency in how
with homeowners, modify loans, offer other workouts, and handle foreclosures. Servicers who do not comply with the GSE guidelines
can face penalties.
said that the GSEs had published announcements for servicers to get their
policies in line with those of CFPB in October and November of last year and
those updates also go into effect this month.
The changes that Fannie Mae and the
CFPB are making are with the aim of helping struggling homeowners avoid
foreclosure Bounds said. CFPB has
expressed dissatisfaction with the servicing industry's practices and
record-keeping even before the mortgage crisis and has said that many servicers
were not prepared for the influx of delinquencies when times got rough.
Improving the servicers'
communications with borrowers is central to many of the changes from both the
GSEs and CFPB, with an emphasis on earlier and more frequent contact. Bounds said
that Fannie Mae will keep in place many of its existing delinquency management
standards, however, because they already meet or exceed the CFPB's minimum
Fannie Mae, for instance, requires
its servicers to attempt to establish live contact when a borrower misses a
monthly payment. A solicitation letter
including a package of information relating to Fannie Mae's workout options and
requesting that the borrower supply financial information must be sent between
the 31st and 35th day of delinquency with a follow-up if
necessary between days 61 and 65.
Fannie Mae's new guidelines require
that servicers acknowledge in writing receipt of the borrowers response package
within five business days. Previously
they could give a verbal acknowledgement within three days of receiving the
package. Servicers of Fannie Mae's loans were also given updated guidelines on
handling incoming borrower contact and notifying borrowers of payment changes.
The new rules do not allow services
to refer a delinquent loan for foreclosure before the 121st day of
delinquency in order to allow borrowers whose loans are secured by their
principal residence adequate time to submit their response package and have it reviewed
for a workout option.
Also under both new Fannie Mae and
CFPB rules, loans that are secured by a primary residence cannot be referred
for foreclosure if:
The borrower has submitted a
completed response package and the servicer has yet to extinguish the 30-day
period for evaluating it.
The servicer has extended a workout
option, and the borrower has remaining time in which to respond.
- The borrower has been approved for mortgage assistance
under the "Hardest Hit Funds" initiative.
- The borrower is performing under the terms of a workout
option that the servicer extended.
- The borrower has requested an appeal in a timely
fashion for which an appeal is under review, or the borrower's response on
the decision is still outstanding.
Even if a loan was already referred
to foreclosure the servicer can hold off on the next step in the process. This
can be done under conditions such as there are at least 38 or more days before
a foreclosure sale date.
The new rules also change how a
borrower may contest servicers' decisions, particularly the denial of certain
loan modifications. Bounds says that at the moment, Fannie Mae defines an
"escalation process," which servicers can follow in resolving borrower
disputes. However, instead of the
escalation process the company reminds servicers of their obligations to
respond to borrower inquiries and disputes and has set forth a new appeals
process for loans secured by principal residences under which borrowers will be
allowed an independent review of loan modification denials. The guidelines also lay out the amount of
time the servicer has to complete their review of a borrower's appeal and what
happens to the loan during that time.
Bounds said that lenders and
servicers have been hurrying to comply with both the new CFPB rules and Fannie
Mae guidelines. Fannie Mae has held
several web seminars for servicers as well as addressing the changes at its second
annual Servicer Total Achievement and Rewards (STARTM) Strategy
Summit in Washington, DC, last September.