After more than 3.5 million families have lost their homes to foreclosure over the past five years, Fannie Mae has issued new standards requiring servicers to take a consistent approach for handling delinquent mortgages.
“We want homeowners to be able to understand their options when facing foreclosure, and we want servicers to reach homeowners early in the process, communicate frequently and clearly, and help homeowners avoid foreclosure.” said Jeff Hayward, Senior Vice President of Fannie Mae’s National Servicing Organization.
These standards require servicers to implement consistent processes across a number of areas, and hold them accountable if they do not.
Borrower Contact. Under the new standards, servicers must achieve “quality right party contact” with borrowers. This includes building a strong customer-service relationship with homeowners, determining the reasons for their delinquency, assessing their ability to pay, and educating homeowners on the availability of foreclosure prevention options. Fannie Mae’s borrower contact standards will increase servicer effectiveness in reaching homeowners, bring greater consistency and clarity to servicer communications with homeowners, and increase the likelihood that servicers will contact homeowners early in the default process, which is one of the most important factors in reaching a resolution that avoids a foreclosure. During the first 120 days of delinquency, homeowners will be contacted both verbally and in writing to complete a mortgage modification or other solution to remain in the home, or enter into an arrangement to exit the home without a foreclosure.
Foreclosure Timelines. Servicers must follow clear timelines for referring loans to foreclosure, setting a date of sale for foreclosed properties, and use of designated counsel, and they will face compensatory fees for timeline violations. These standards will bring greater consistency, fairness, and efficiency to a process that has too often been characterized by inconsistency, abuse, and delay – to the detriment of mortgage investors, homeowners, and communities alike. Once 120 days of delinquency have passed, the foreclosure process will begin.
“We hope this step will encourage any homeowner who has not yet acted to work with the servicer to pursue all options to avoid foreclosure,” said Hayward. “But even in situations where foreclosure can’t be avoided, we believe this process and this timetable will help motivate all participants toward resolutions that will ultimately stabilize neighborhoods as quickly as possible.”
Incentives and Compensatory Fees. Fannie Mae will provide incentives for servicers to complete loan workouts earlier in a homeowner’s delinquency, and charge compensatory fees when servicers fail to make quality right party contact. Incentives and fees will be based on clear benchmarks. These steps are intended to help improve servicer performance and hold servicers accountable for their effectiveness in assisting homeowners. Compensatory fees remain a possibility for servicers who do not process foreclosures in a timely manner.
Between January 1, 2009 and March 31, 2011, Fannie Mae helped over 500,000 struggling homeowners avoid foreclosure. Implementation of the new servicing standards will speed further progress and ensure greater clarity for servicers on how to work with homeowners.