By: Jacob Swodeck - PartnerFirst, Director of Education
So, if you’re wondering what is happening at the highest levels in the mortgage servicing world, here it is! The Federal Housing Finance Agency (FHFA) has directed Fannie Mae and Freddie Mac to align their guidelines for servicing delinquent mortgages they own or guarantee. According to the FHFA, this framework will create uniform servicing requirements, as well as monetary incentives for servicers that perform well and penalties for servicers that do not.
The directive requires the two government-sponsored enterprises to align servicing requirements in four areas: borrower contact, delinquency management practices, loan modifications and foreclosure timelines.
The new guidelines will also prohibit servicers from beginning the foreclosure process if they are engaged with borrowers in a "good-faith effort to resolve the delinquency." Servicers must review each case to make sure the borrower has been considered for foreclosure alternatives before the loan is referred for foreclosure. Financial incentives for foreclosure alternatives will still be available to servicers after the foreclosure process has begun.
“FHFA’s directive to align enterprise policies for servicing delinquent mortgages should result in earlier servicer engagement to identify the best solution available for homeowners, given their individual circumstances,” FHFA Acting Director Edward DeMarco said in a statement.
Detailed guidelines will be coming this quarter and next, the FHFA says. Fannie Mae and Freddie Mac have posted overviews of the servicing alignment initiative on their websites. Fannie Mae's overview says the company anticipates issuing updated guidelines to its servicers this quarter.
Charles E. Haldeman Jr., Freddie Mac's CEO, said the alignment of servicing practices will help servicers streamline their operations.
"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," Haldeman explained in a statement.
In a separate statement, Fannie Mae CEO Michael J. Williams said the initiative will "direct servicers to reach families earlier, communicate more frequently and clearly, and provide relief."
It is very vague as to whether or not this will affect the two GSE’s HAFA guidelines. It is presumable that they will align soon as well. As is always the case, it is now up to the servicers to implement these new AMBITIOUS guidelines. That being said, they are definitely a step in the right direction.