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.”
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
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.
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.
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
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
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.