Consistent Servicing Standards: Three Ways Homeowners Benefit
Distressed homeowners with mortgages owned by Freddie Mac and Fannie Mae are experiencing a more consistent and efficient interaction with their servicers thanks to new servicing requirements that took effect late last year. This updated framework for mortgage loan servicing is part of the Servicing Alignment Initiative (SAI), an effort directed by our regulator – the Federal Housing Finance Agency – to establish uniform servicing policies and processes for borrowers who may be in danger of losing their homes. The SAI aligns requirements and sets standards for GSE-owned mortgages across key areas of servicing, such as borrower contact, delinquency management, and workout options.
Consistency and standardization are good for the industry, helping to increase efficiency for servicers by streamlining and simplifying processes. Here are three reasons why it's also good for borrowers.
Frequent and early contact. We know that the earlier a borrower starts working with their servicer, the greater the likelihood of a successful workout. The SAI helps us do just that by establishing clear standards that emphasize early intervention through earlier and more frequent borrower contact. We expect and require our servicers to make repeated efforts to reach delinquent borrowers – by phone, mail, and other ways – so they can connect directly with them and have a meaningful discussion about their individual situation and options. We call this Quality Right Party Contact (QRPC), and it's at the heart of this initiative.
For example, in the first 36 days after a missed first payment, borrowers should receive a late notice, at least two phone calls, and a loan workout package. In fact, we require servicers to begin making calls between the third and 36th day of delinquency, and continue every three days until QRPC is made, the delinquency is cured, a complete borrower response package is received, or the borrower enters into a forbearance or repayment plan.
One set of paperwork and one eligibility waterfall. For the first time, borrowers will submit their information one time using one standard borrower response package. In practice, this means servicers are using one set of documentation to consider borrowers for all available home-retention options. If the borrower is not approved for a relief or workout option, like a repayment plan or loan modification, the servicer will use the same information from the same borrower response package to evaluate the borrower for another foreclosure alternative, such as a short sale or deed-in-lieu. Additional documentation is sometimes required at this point, however.
Quicker decisions. Using one set of documents and consistent evaluation standards to determine loan modification eligibility leads to quicker decisions. Servicers have 30 days to make a decision about a relief option or loan modification once they receive a completed borrower response package, so they can more quickly offer alternatives to foreclosure to homeowners who are not eligible for a modification. In addition, we offer incentives to servicers for complete borrower response packages and have tiered loan modification incentives to spur faster resolutions.
At Freddie Mac, we are always looking for ways to help struggling borrowers avoid foreclosure. Working together with our servicers, we helped nearly 210,000 struggling borrowers avoid foreclosure last year. In 2012, we will be working closely with our regulator to further align and improve our servicing policies – primarily focused on short sales and deeds-in-lieu of foreclosure. Our goal is not only to increase the volume of these foreclosure alternatives, but also to improve the economics of these transactions. Some of the policies and strategies we're looking at include incentives, documentation needs, and borrower solicitation campaigns. Doing this will not only enable us to help more distressed homeowners, it will also help us reduce credit losses for the company and America's taxpayers.
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