More Details on FHFA Alignment of Servicing Standards
April 28, 2011
Today, the Federal Housing Finance Agency (FHFA) announced additional information on the Servicing Alignment Initiative, the joint-Freddie Mac/Fannie Mae work undertaken at the direction of, and in concert with, the FHFA to align where feasible GSE non-performing loan servicing standards. Overall, we believe that consistent servicing standards to be implemented by Freddie Mac beginning this summer will further enhance our mutual goal of quality and responsible servicing, while strengthening assistance for delinquent borrowers more quickly and effectively.
We are providing the following details to help you assess the scope of upcoming changes to our requirements for servicing Freddie Mac-owned and guaranteed mortgages. When fully implemented, servicers of GSE-owned and guaranteed mortgages will manage delinquent loan servicing under a new set of consistently aligned requirements for:
- Borrower contact and delinquency management practices, including earlier and more frequent contact following a missed payment and throughout the delinquency period to ensure that eligible borrowers are assessed for all available workout or foreclosure avoidance solutions as early as possible. Requirements will include right party contact and call center actions metrics and consistent borrower communications, including the adoption of a new, uniform Borrower Assistance Form as part of a standard Borrower Solicitation Package.
- Loan modifications and workouts that 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.
- Incentives and compensatory fees that will appropriately compensate eligible servicers for meeting quality benchmarks for early borrower engagement measured by the receipt of completed borrower assistance packages and settled workouts. We will also assess compensatory fees and other remedies for servicers who fail to meet the defined loss mitigation metrics and foreclosure timelines.
- Foreclosure process timelines, with consistent application of foreclosure timeline measurements between the GSEs, from referrals through date of sale and associated actions.
What This Means for Freddie Mac Servicers
When all of the aligned requirements are finalized, you will:
- Be responsible for contacting delinquent borrowers earlier and more frequently in the process using a new set of borrower contact requirements for phone, written, and electronic communication.
- Implement, send, and process a new borrower information package, called the Borrower Solicitation Package, required by both GSEs. This solicitation package will include a new uniform Borrower Assistance Form and will explain and request all income and hardship documentation that must be submitted by a borrower. You will use a response package returned by the borrower to evaluate the borrower for any and all Freddie Mac workout or foreclosure avoidance solutions, including a Home Affordable Modification program (HAMP) modification.
- Begin assessing borrowers for a new mortgage modification program being developed for borrowers who do not qualify for a HAMP modification. This new mortgage modification program will have certain differences in requirements from our current non-HAMP mortgage modification, and will eventually replace the mortgage modification requirements in Single-Family Seller/Servicer Guide (Guide) Chapter B65.
- 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.
- Adjust your foreclosure processing operations to accommodate revised timelines, and ensure you meet these timelines to minimize revised foreclosure timeline compensatory fees.
- Achieve efficiencies in your servicing operations over time through the implementation of GSE-aligned requirements, a streamlined evaluation of borrowers for all potential alternatives, and a greater understanding between you and borrowers at each stage of the process.
The alignment initiative encourages and fully supports Servicers who have or will implement single point of contact models for the purpose of achieving contact continuity throughout the delinquency process.
Freddie Mac Implementation
While the GSEs are aligned in the requirement categories outlined above, it is important that servicers servicing mortgages for both GSEs understand that there will be some operational differences in our implementation. We are completing the Freddie Mac operational approach, with the intention of:
- Finalizing the necessary systems and operational changes, including any necessary changes to our servicing technology tools and investor reporting processes, and communicating these changes as part of our full requirements rollout.
- Determining aggressive, yet feasible, phased effective dates through this summer for the majority of the components to ensure efficient implementation by all Servicers.
- Providing complete requirements to all Freddie Mac Servicers, which will be published via our Guide Bulletins in the near future.
- Supporting Servicers in their implementation of Freddie Mac requirements with a robust set of training resources.
As we begin the Freddie Mac implementation, we strongly urge Servicers of Freddie Mac-owned mortgages to work closely with HUD-approved housing counseling organizations, including distributing appropriate compensation to housing counselors for their role in delivering complete Borrower Response packages.
While our requirements are not final until we publish them in a Guide Bulletin, it is important that you understand the scope of the upcoming changes to begin to prepare your implementation plans. We encourage you to review:
- FHFA’s press release
- Our overview fact sheet for Freddie Mac Servicers that includes additional details about our upcoming requirements specific to Freddie Mac Servicers and servicing Freddie Mac-owned mortgages.
We recognize that this is a significant set of upcoming changes for Freddie Mac Servicers. We believe that these changes support many of the best practices and goals we share to improve servicing performance and support the nation’s housing recovery.