Attempts at Relief and Reform

FHFA to Develop New Mortgage Servicing Compensation Plan

Posted on Thursday, January 20, 2011

The Federal Housing Finance Agency (FHFA) on Tuesday said it has directed Fannie Mae and Freddie Mac to work in coordination with FHFA and HUD to consider alternatives for future mortgage servicing structures and fees for single-family mortgage loans.
The current compensation plan is typically based on a minimum servicing fee that is a part of the mortgage rate, which FHFA says decreases flexibility for the servicing of non-performing loans.
The four agencies will consider alternatives to the traditional compensation structure, with a focus on
improving service for borrowers, reducing financial risk for servicers, and providing the flexibility for guarantors to better manage loans that are non-performing.
According to the report, alternatives for consideration may feature a fee for service compensation structure for non-performing loans and the possibility of reducing or even eliminating the minimum mortgage service fee for performing loans.
“As the recent problems in managing mortgage delinquencies suggest, the current servicing compensation model was not designed for current market conditions,” said FHFA Acting Director Edward J. DeMarco. “The goal of this joint initiative is to explore alternative models for single-family mortgage servicing compensation that better address the needs of borrowers, servicers, originators, investors and guarantors.”
FHFA believes this effort will lead to a proposal for a new model that will benefit from public input. As such, the agency is planning to gather feedback from the industry, consumer groups, investors, and from other regulators and government agencies.
FHFA says any new servicing compensation structure is not expected to occur before the summer of 2012.
By: Joy Leopold - DS News

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