Friday, August 1, 2008

Fannie Follows Freddie's Lead on Workouts, Sort of

(Housing Wire) As expected, Fannie Mae (FNM: 11.61 0.00%) said late Thursday that it would boost payments to servicers for completing certain workouts, as both GSEs look to make a very public push to boost servicers’ focus on loss mitigation. The move by Fannie comes on the heels of a Thursday announcement by sister GSE Freddie Mac (FRE: 8.07 0.00%) that it would make sweeping changes to servicing policy in an effort to better incentivize servicers towards loss mitigation efforts.

While both GSEs tend to move in concert, Fannie’s efforts differ in some significant ways from the steps taken at Freddie.

For one thing, Fannie’s announcement only said the GSE would boost its payments to servicers completing workouts, and that it would prohibit servicers from charging a modification fee to troubled borrowers; both were moves made by Freddie Mac, as well.

“We are working closely with our loan servicing partners to make the process of helping borrowers keep their homes as streamlined as possible and we continue to enhance delegation to ensure decisions can be made quickly,” said Jason Allnutt, vice president for credit loss management at Fannie Mae.

Fannie’s announcement stopped curiously short of making some of the other changes that Freddie rolled out Thursday, however, including lengthening foreclosure timelines to 300 days in 21 states (including California), eliminating annual timeline compensation, and changing loss mitigation guidelines to allow re-modification of previously modified loans.

The steps by Freddie Mac represented a wholesale change in the GSE’s approach toward troubled borrowers changes that were arguably more central to the foreclosure process than merely making compensation changes.

That’s not to say Freddie’s changes were somehow summarily better or worse in comparison, at least according to HW’s sources; many servicing managers that spoke with us on the condition of anonymity suggested that Freddie Mac’s pushout on foreclosure timelines would likely squeeze servicing margins further as advances would pile up.

“I think Fannie might be taking a more cautious rail here,” said one manager. “Pushing out foreclosure timelines, even summarily, has real financial implications for us.”

But more changes may still be coming; unlike Freddie, whose changes are nearly immediate, Fannie Mae said its changes to compensation for servicers would not be effective until later this year, and that it would provide more details on its servicing practices at that time.

At least one servicing manager said that it would be likely that Fannie would change its timeline approach as well. “You’ll see the same changes made, just later,” said one source.

For now, many servicers are scrambling to determine how to implement the changes; many told HW that they didn’t have advance notice of the changes, and while the 300-day foreclosure limit is somewhat of a voluntary guideline foreclosure can occur faster than that timeframe servicers are still having to figure out how and when it makes sense to push a foreclosure out into that sort of lengthened timeframe.

“Obviously, we’ve got some policies and procedures to change,” said one manager, who said the servicing shop he works for was still “weighing its options.”

“We’re planning as if Fannie is going to make similar changes on our files with them,” said the manager.

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