GSE Execs Say Defined Foreclosure Timelines Are Necessary

Representatives from both Fannie Mae and Freddie Mac upheld the companies’ practice of assessing penalties against servicers who fail to meet defined timelines for processing foreclosures.

Speaking to mortgage professionals at the Five Star MPact Conference in Dallas, Steve Clinton, Freddie Mac’s SVP of single-family operations, said “clearly the better outcome for both Fannie and Freddie is to keep the borrower in the home” with a loan modification offered early in the default process.

But as Edward Seiler, a director in Fannie Mae’s National Servicing Organization, acknowledged, sometimes servicers are faced with a difficult decision – sometimes “a borrower just shouldn’t be in that home,” Seiler said.

In such a situation, it’s critical that servicers complete the foreclosure process in a timely manner to clear bad loans from the pipeline and limit losses for the GSEs and taxpayers, according to the companies’ execs.

Rep. Elijah Cummings (D-Maryland) recently began inquiring about policies in place at Fannie and Freddie that fine servicers when they don’t complete a foreclosure action within the window of time established by the GSEs’ servicing guidelines.

Cummings says internal records show the GSEs assessed $150 million in fines against servicers last year for not processing foreclosures fast enough.
“I am concerned that these penalties, at least some of which were ordered by the Federal Housing Finance Agency (FHFA), may have contributed to widespread abuses by mortgage servicing companies and law firms attempting to meet arbitrary deadlines to expedite foreclosures,” Cummings said in a letter sent last month to Edward DeMarco, acting director of FHFA.

Cummings cites a June 2010 report from FHFA’s Office of Conservatorship Operations which concluded that “servicers, attorneys, and other supporting personnel were overloaded with the volume of foreclosures … documentation problems were evident, and law firms … were not devoting the time necessary to their cases.”

Clinton and Seiler stress that the foreclosure timeline mandates come into play only after all loss mitigation options are exhausted.

“Our biggest problem was loans from a year and two years ago were just sitting there,” stagnant in the foreclosure pipeline, Clinton said.

Fannie Mae and Freddie Mac have synchronized their individual foreclosure timeline requirements with the coordinated Servicing Alignment Initiative that went into effect October 1.

Clinton notes that the timelines and penalties have been in place for some time, but with the newly enacted guidelines, the GSE have aligned their parameters in order to help simplify and standardize procedures for their servicers.

“We don’t want the money” from penalties, Clinton said, “we want the behavior,” in terms of servicer compliance with both foreclosure prevention and foreclosure processing procedures.

In today’s environment of mass default, Clinton says the industry needs mass loss mitigation – effective procedures, standardized evaluations, and timely resolutions.