New guidelines for mortgage servicers could be good news for struggling borrowers
Mortgage servicers have been roundly criticized for their efforts -- or lack thereof -- to help delinquent homeowners avoid foreclosure. More than 2 million of the delinquent mortgages they're servicing are owned or guaranteed by Fannie Mae and Freddie Mac.
You can see how they could make a difference.
Their regulator, the Federal Housing Finance Agency, said yesterday that the mortgage giants will issue new rules for servicing troubled mortgages in hopes of doing just that. Servicers will get incentives for working with borrowers more quickly -- "earlier contact, more frequent communication, and prompt decisions" is how the agency's director puts it -- and will be hit with penalties if they don't perform well.
For instance: no more starting foreclosure proceedings while a borrower is working with the servicer on an alternative.
"The updated guidelines ... address the so-called 'dual track' by requiring servicers to contact borrowers as soon as they become delinquent and focus solely on remediating that delinquency," the agency said. "The foreclosure process may not commence if the borrower and servicer are engaged in a good-faith effort to resolve the delinquency. The servicer must conduct a formal review of each case to ensure a borrower has been considered for foreclosure alternatives before the loan is referred for foreclosure. Even after foreclosure processing begins, financial incentives are provided to encourage servicers to continue to help borrowers pursue a foreclosure alternative."
Full guidelines are expected later this spring or over the summer, but there's a link to Fannie and Freddie's own announcements from the FHFA release.
Anne Balcer Norton, the state's deputy commissioner of financial regulation, said by email that it looks like a good start to fixing "misaligned compensation incentives" that make servicers treat foreclosure as the best option.
"There is a great deal of blame by the foreclosure bar and the servicers on Fannie and Freddie requiring that they move ahead with foreclosure proceedings within a given window," said Norton, who headed foreclosure-prevention efforts at a housing counseling group before coming to the state Department of Labor, Licensing and Regulation. "Ideally, through these guidelines, some of that blame is less credible."
She added, "It also sounds like these changes are in-line with the Enforcement Orders of the federal regulators in response to robo-signing. We're still far from national standards and fixing the problem but after 4 years, it looks like the industry is starting to head in the right direction."