Freddie Mac boosts mortgage servicer incentives

July 31, 2008 by · Leave a Comment
Filed under: Industry News 

Freddie Mac on Thursday said it is boosting incentives to mortgage servicing companies to help more borrowers renegotiate loans in an effort to curb rising delinquencies.

Freddie Mac, a government-chartered company, will also increase the time it gives mortgage servicers to negotiate with delinquent borrowers in Washington, D.C., and 20 states to 300 days from a range of 120 to 299 days, a spokeswoman said. The states are those with relatively fast foreclosure processes, Freddie Mac said.

Freddie Mac is struggling to contain billions of dollars in losses sustained since mid-2007 as the housing slump deepened more than expected. Speculation that losses will severely pinch capital positions at the company and rival Fannie Mae, led to sharp drops in their share prices since May and legislation this week to provide emergency financial backstops from the U.S. Treasury.

Delinquencies on loans guaranteed by Freddie Mac more than doubled in the year through May to 0.86 percent. The most recent national delinquency rate calculated by the Mortgage Bankers Association is 6.35 percent, Freddie Mac said.

Compensation to loan servicers that negotiate new payment plans and loan contracts will double to $500 and $800, respectively, Freddie Mac said. For a servicer that completes a so-called short-sale, in which Freddie Mac accepts a sale price on a home below the balance of the mortgage, payments also double, to $2,200. Accepting short sales can result in lower losses for lenders by ending the delinquency period and preventing ownership of the property through foreclosure.

Among new incentives, Freddie Mac said it will reimburse servicers for the cost of door-to-door programs — in which services seek out troubled borrowers in person to discuss renegotiating their loans — if they result in the borrower contacting the servicer.

Servicers have also been hurt since they must advance payments to investors even if the loan is in arrears, and as they hire more skilled workers to negotiate with borrowers and re-underwrite loans.

Servicing companies, often units of major lenders, this week said they increased the number of mortgages they have modified to more affordable terms last quarter.

Source: Reuters 2008

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