4/28/2011
Q1. What is the Servicing Alignment Initiative and why is FHFA directing it?
The Servicing Alignment Initiative is a FHFA-led effort to establish consistent policies and processes for the servicing of delinquent loans owned or guaranteed by Fannie Mae and Freddie Mac (the Enterprises). The alignment will help servicers do a better job of resolving delinquencies in a more consistent and expeditious manner, to keep more people in their homes whenever possible and to minimize losses to the companies and taxpayers. Fannie Mae and Freddie Mac are each targeting the second and third quarters of 2011 to issue detailed guidelines to their servicers.
Q2. What areas are being aligned?
FHFA’s directive requires Fannie Mae and Freddie Mac to align in four key areas: (1) borrower contact, (2) delinquency management practices, (3) loan modifications and foreclosure alternatives, and (4) foreclosure timelines. Additionally, new monetary incentives and penalties are being introduced to reinforce effective servicer execution in these areas.
- Fannie Mae and Freddie Mac will require servicers to initiate contact as early as the third day following a missed payment.
- Servicers must make frequent efforts to establish a meaningful dialogue with the borrower to help the servicer understand the borrower’s circumstances and intentions and to inform and educate the borrowers of their options.
- Servicers will now utilize the same Borrower Solicitation Package for both Fannie Mae and Freddie Mac loans, to collect all information necessary to expeditiously consider the best alternative for a borrower’s circumstance. This approach will allow servicers to more quickly determine modification eligibility—either for the Making Home Affordable Program or for a Fannie Mae or Freddie Mac loan modification, or for another foreclosure alternative, such as a short sale or deed-in-lieu of foreclosure.
Q3. Why is FHFA directing Fannie Mae and Freddie Mac to align their approaches now?
FHFA, Fannie Mae and Freddie Mac are responding to concerns about servicer performance raised throughout the industry and government. The intent of the Servicing Alignment Initiative is to establish clear and consistent guidance backed by incentives and penalties that drive the servicers to contact borrowers earlier, communicate with borrowers more frequently, and find resolution more expeditiously.
Q4. What are the anticipated effects of Servicing Alignment for homeowners, servicers?
Aligning the approaches used by Fannie Mae and Freddie Mac will allow servicers to streamline and simplify their processes, with the following intended outcomes:
- Improved service to borrowers as well as greater consistency and clarity in borrower communications.
- More efficient processing of loan modifications.
- Consistency, fairness, and efficiency in the foreclosure process.
- Increased servicer accountability, reinforced by new incentives and sanctions.
- The use of one set of documents from borrowers so servicers can more quickly determine modification eligibility and offer foreclosure alternatives to homeowners who are not eligible for a modification.
Q5. Can you describe the new incentives and sanctions referenced above? Will servicers be expected to reach a desired level of performance?
Fannie Mae and Freddie Mac will introduce new benchmarks for borrower interaction. For eligible servicers achieving a benchmark, Fannie Mae and Freddie Mac will make incentive payments for collecting documents necessary to evaluate borrowers for foreclosure alternatives. Sanctions will be assessed for those servicers not achieving a minimum standard of performance. In addition, servicers will be incented to perform loan modifications in the earlier stages of borrower delinquency. For example, for loan modifications completed within four months of delinquency, Fannie Mae and Freddie Mac will pay eligible servicers $1600 but only $400 if the process extends beyond seven months.
Q6. How will Fannie Mae and Freddie Mac monitor and ensure compliance? How does this differ from before? Will penalty and incentive amounts be made public?
Servicers will report new performance metrics, which will be the basis for incentives paid and penalties assessed. These new measures, incentives, and sanctions will complement and bolster existing reporting regimens, quality control programs, and the work of Fannie Mae and Freddie Mac’s portfolio management teams. Each company will continue to use an existing set of requirements and remedies that will be applied as necessary to enforce compliance, including their ability to transfer servicing from poor performers. FHFA’s examinations will evaluate the effectiveness of Fannie Mae's and Freddie Mac's implementation.
Fannie Mae and Freddie Mac did not previously offer financial incentives to motivate servicers to provide early communications with borrowers and timely evaluation for foreclosure alternatives. With this initiative, Fannie Mae and Freddie Mac will not only pay for prompt and efficient services, but will also impose financial sanctions for failure to reach borrowers, collect key documents and evaluate borrowers for modifications. Fee incentive amounts and formulas will be summarized in Fannie Mae’s and Freddie Mac’s servicer communications.
Q7. How will Alignment affect servicers’ responsibilities for foreclosures?
The Enterprises will adopt uniform, state-specific timelines that are in compliance with applicable laws and responsive to current conditions in each state. They will also adopt a uniform method for the calculation and assessment of fees for exceeding the allowable time limits. Servicers remain responsible for improper actions and delays. The timelines will be periodically updated.
Q8. Can “dual-tracking” occur under the Servicing Alignment (where foreclosure proceedings and loan modification activities are pursued concurrently)?
Under the new requirements, servicers must engage in a single track for considering foreclosure alternatives up to the 120th day of delinquency. The foreclosure process may not commence if the borrower and servicer are engaged in a good-faith effort to resolve the delinquency. Also, prior to referral for foreclosure, the servicer must perform a formal review of the case to confirm that the borrower has been considered for a foreclosure alternative consistent with Enterprise guidelines. Even after the foreclosure process has begun, servicers must continue to work with homeowners on foreclosure alternatives to ensure borrowers have additional opportunity to avoid foreclosure beyond the initial four-month period. Monetary incentives will encourage servicers to continue to reach out to borrowers during this time frame. If an alternative resolution is not possible, foreclosure must proceed to mitigate harm for investors, taxpayers and communities.
Q9. Does today’s directive require servicers to designate a single point of contact for homeowners? If not, why not?
Today’s directive is supportive of servicers designating a single point of contact for homeowners but does not, by itself, require it. This topic is currently being addressed through other regulatory efforts and FHFA is seeking to align Enterprise requirements with those efforts.
Q10. Is FHFA exploring other areas for alignment?
FHFA continues to explore additional opportunities for efficiency and alignment between Fannie Mae and Freddie Mac to help struggling homeowners, promote the stability of the housing finance system, and protect taxpayers.
Q11. Is Servicing Alignment a step toward national servicing standards?
The new framework is intended to help improve servicing effectiveness for Fannie Mae and Freddie Mac loans. Because of Fannie Mae’s and Freddie Mac’s importance in the U.S. mortgage industry, and the large number of servicers that manage their loans, the Alignment Initiative is expected to have a material, positive impact on the servicing industry as a whole.
Q12. Does the Servicing Alignment Initiative affect HAMP or HAFA (Home Affordable Foreclosure Alternative)?
As part of the new uniform application process, servicers must consider borrowers simultaneously for HAMP, other non-HAMP modifications, HAFA, and non-HAFA short sales and deeds in lieu of foreclosure as part of the new uniform application process. HAMP and HAFA eligibility requirements will remain the same and HAMP will continue to be considered for the first modification option offered to homeowners.
Q13. How will the alignment affect third-party counselors involved in loss mitigation?
Counselors should see greater transparency and quicker decisions for their clients seeking an alternative to foreclosure, as well as a standardized application process for borrowers. FHFA, Fannie Mae and Freddie Mac continue to support and promote the use of housing counseling services.
Q14. What can a borrower who thinks they aren’t offered the right modification or foreclosure alternative do?
Under Alignment, borrowers will have an opportunity to escalate the servicer’s decision. Servicers will be required to have processes in place to handle borrower inquiries, complaints, and disputes; to resolve the issues; and to notify the borrower within a maximum of 30 days from receipt of their actions.
Q15. Does this alignment signal an intention to merge the Enterprises, and is it part of the Enterprise reform effort?
No. This alignment is a distinct near-term effort intended to promote consistency and effectiveness in the servicing of loans backed by Fannie Mae and Freddie Mac, hold servicers accountable for their performance, and help struggling borrowers.
Q16. How does the alignment initiative tie into the Servicer Compensation Initiative?
Alignment immediately addresses servicer performance in the managing of foreclosure and foreclosure prevention processes. The Servicer Compensation Initiative is considering the structure of servicer compensation more broadly and systematically.
Contacts:
Corinne Russell (202) 649-3032 / Stefanie Johnson (202) 649-3030