The Federal Housing Finance Agency (FHFA) has directed Freddie Mac and Fannie Mae to establish consistent mortgage loan servicing and delinquency management requirements for the companies servicing the two government sponsored enterprises' (GSEs) delinquent mortgages. The updated framework will establish uniform servicing requirements across the GSEs for servicing companies with which they contract and will establish "monetary incentives for servicers that perform well and penalties for those that do not."
Acting FHFA Director Edward J. DeMarco said "FHFA's directive to align Enterprise policies for servicing delinquent mortgages should result in earlier servicers' engagement to identify the best solution available for homeowners, given their individual circumstances."
DeMarco said that the guidelines also address the "dual track" that has been a subject of many complaints. Servicers will no longer be allowed to pursue foreclosure if borrower and servicer are engaged in good-faith negations toward an alternative solution.
Simultaneous with the announcement from FHFA the Enterprises each released additional information on the scope of the Servicing Alignment Initiative. Freddie Mac's announcement stressed that while the Enterprises are aligned in the requirement categories, companies servicing mortgages for both Freddie and Fannie should understand that there will be some operational differences in the implementation.
The changes will cover:
- Borrower Contact and Delinquency Management. The policies will require servicers to contact borrowers earlier, ideally after any missed payment and to continue the contact on a frequent basis. All borrowers must be evaluated for any available foreclosure alternatives such as the Home Affordable Modification Program (HAMP). Servicers must establish a uniform definition for a Quality Right Party Contact (QRPC) and encourage adoption of a single contact the borrower can communicate with on an ongoing basis. The servicers must set up consistent written communications and solicitation and response packages and standards and timelines for call center activity. There will also be metrics for evaluating call center performance including speed to answer, call abandonment rate, and timelines for collection and follow-up calls.
- Loan Modifications. The details will include a new set of requirements that promote long-term, sustainable mortgage modification solutions based on best practices, consistent borrower evaluation standards, and a required trial period for all borrowers before a permanent modification. Freddie Mac's announcement contains the additional requirement that servicers begin assessing borrowers for a new mortgage modification program being developed for borrowers who do not qualify for a HAMP modification."
- Foreclosure Prevention Solicitation. The alignment will provide requirements for documentation to be sent to the borrower inviting them to participate in a foreclosure prevention program and will include a uniform Borrower Assistance Form and hardship affidavit which will be used to evaluate the borrower for participation in all solutions including HAMP and non-HAMP modifications and pre-foreclosure sales and will replace the forms currently used for HAMP. Modifications will be aligned with updated modifications issued earlier in Servicing Guide Announcements from the respective Enterprises.
- Delinquency Management. Guidelines will be established to insure consistent communication with the borrower. This will include acknowledgement of events such as receipt of borrower documents and notices about the process, timelines, and instances when foreclosure actions may not be halted. Consistent schedules will be set up for late notices, reminder letters, notifying borrowers of missing or incomplete information, breach letters and other pertinent information and events.
- Delinquency Timelines. Servicers will establish consistent timelines and requirements for property inspections, pre-foreclosure review, and foreclosure referral.
- Case Escalation. Servicers will be required to implement a process for reviewing and responding to borrower complaints, and raising those disputes to an escalated case level as needed. The requirements will include timelines for review and response, and information to be communicated back to the borrower.
- Foreclosure Timelines. Timelines will be established to cover procedures from the payment due date through the referral to an attorney and then to the date of sale with a maximum number of days set to conform with state laws. There will, however, be allowances for unavoidable delays
An incentives and compensatory fee schedule will be established for Borrower Response Packages and workouts, and compensatory fees will be set for violations of foreclosure timelines and missed incentive package benchmarks. The workout incentives will be structured so that the servicer receives a larger incentive for closing workouts early in delinquency and are dependent on the servicer completing the modification within 60 days of completion of the trial period.
Freddie Mac CEO Charles E. 'Ed' Haldeman, Jr. said, "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. 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.
The requirements for the alignments match some of those set forth earlier as part of a settlement agreement between servicers and the 50 state attorneys general. Missing from the Enterprise guidelines however are any requirements of servicers to verify the accuracy of amounts owed by borrowers, limit fees charged to distressed borrowers, increase supervision of attorneys and third-party vendors, or adoption of directives to improve tracking of mortgage documents and the chain of title.