Servicing Alignment Initiative: Foreclosure Time Lines
June 3, 2011
This is the third article in a four-part series explaining the major components of the joint GSE Servicing Alignment Initiative announced on April 28, 2011.
In keeping with the requirements of the Servicing Alignment Initiative, we will institute uniform foreclosure process time lines to measure foreclosure time line performance. This will achieve greater clarity and efficiency in the foreclosure process and more tightly align state foreclosure time lines between the GSEs.
For this component of the Servicing Alignment Initiative, our implementation of the requirements focuses on:
- Uniform time lines for referrals to foreclosure and for foreclosure sales.
- Standardized foreclosure time line delays.
- Consistent compensatory fees.
Uniform Time Lines for Referrals to Foreclosure and for Foreclosure Sales
The time it takes to process a foreclosure, called the foreclosure time line, will continue to be measured in days from the due date of the last paid installment (DDLPI) to the date of the foreclosure sale and will vary by state. Generally speaking, states that use a judicial foreclosure process have longer time lines because foreclosure must be processed through court actions. A non-judicial foreclosure process typically requires less time and is less costly because the deed of trust contains a power of sale clause that enables the foreclosure sale to be initiated and processed out of court. If a state uses both the judicial and non-judicial foreclosure processes, Freddie Mac requires Servicers to use the non-judicial process.
An overall “performance maximum” number of days will be established for each jurisdiction, which, for each state, is the allowable number of days from the day a mortgage is referred to foreclosure to the date of the foreclosure sale. The performance maximum encompasses:
- A state standard for an uncontested foreclosure, generally based on state laws and practices governing foreclosures.
- An allowance for permissible delays that are beyond the control of the Servicer and standard exceptions permitting additional time for delays.
Our new state foreclosure time lines will be published as a Single-Family Seller/Servicer Guide (Guide) Exhibit, and we anticipate they will become effective for mortgages referred to foreclosure this summer. Complete details on our requirements and the effective dates will be provided in an upcoming Guide Bulletin.
Standardized Foreclosure Time Line Delays
In addition to uniform foreclosure time lines, there will be standardized extensions to state performance maximums, based upon the default management data the Servicer reports to Freddie Mac on a monthly basis via Electronic Default Reporting (EDR). Acceptable delays include:
- Military indulgence
- Contested foreclosures
- Loans under HAMP review or in HAMP trial period plans
We will implement a new requirement where Servicers will be responsible for time lines even if a firm in our Designated Counsel Program conducts the foreclosure.
Consistent Compensatory Fees
Consistent foreclosure time line compensatory fees will be assessed to reinforce compliance with the overall foreclosure time line requirements. We anticipate that compensatory fees will become effective for mortgages referred to foreclosure this fall; however complete details will be provided in an upcoming Guide Bulletin.
As part of the new requirements, there will be a new uniform loan-level calculation for compensatory fees for mortgages referred to foreclosure. Servicers may submit data to correct default management data discrepancies; however, no adjustment will be made to compensatory fees assessed due to data discrepancies.
Compensatory fees will be calculated as follows: Unpaid Principal Balance (UPB) x Accounting Net Yield (ANY) / 365 * Number of days over the overall allowed time line. The number of days over the overall allowed time line is the actual number of days from the DDLPI to foreclosure sale - (Performance maximum + 150 days to refer to foreclosure + Any allowed delay days).
Compensatory fees will be billed monthly. Compensatory fees will not be issued if a Servicer’s aggregate amount of monthly compensatory fees is $1,000 or less.
While the GSEs are aligned in their requirements for foreclosure time lines, there will be some differences in implementation. We will provide complete details on our requirements in our Guide Bulletins in the near future. For more information on Freddie Mac’s implementation of the Servicing Alignment Initiative:
- Review the new state foreclosure time lines, which will be implemented later this year.
- Look for the next article in the Servicing Alignment Initiative series focused on incentives and compensatory fees.
- Read our previous articles in the series on borrower contact and delinquency management and loan modification and workout processes.