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 servicers communicate with homeowners, modify loans, offer other workouts, and handle foreclosures.  Servicers who do not comply with the GSE guidelines can face penalties.

Bounds 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 requirements.

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.