"Servicers now face compensatory fees, not for mistakes or unreasonable delays, but simply as the cost of doing business," MBA President David Stevens said in prepared remarks at the trade group's annual servicing conference.
Stevens' comments shine a light on the little-discussed practice of Fannie and Freddie charging millions of dollars in so-called compensatory fees when servicers fail to foreclose on defaulting borrowers in a timely manner. Fannie and Freddie introduced the fees in 2011 but have never disclosed assessments against individual servicers. Some banks have tried to fight the fees to no avail.
Servicers say the compensatory fees create a Catch-22. On the one hand, the government has urged banks to help troubled borrowers stay in their homes while on the other, the government-sponsored enterprises hit them with hefty fees for doing so.
"There are so many conflicting rules," Stevens said in an interview after his speech. "Our goal is to get regulators to just be aware of where one rule conflicts with another."
In his remarks, Stevens, the former head of the Federal Housing Administration, called for the GSEs to extend their foreclosure timelines to "reflect the realities on the ground," in which servicers often have to delay foreclosures to ensure they are complying with the Consumer Financial Protection Bureau's national servicing standards and disparate state rules.
"It isnít right and itís not how compensatory fees should be used," Stevens told the 2,200 attendees gathered at the conference in Orlando. "It is a mistake for the GSEs to impose unfair fees that punish servicers for enforcing those same protections."
Stevens also cited an astonishing statistic: Roughly 70% of all Fannie and Freddie loans in foreclosure are now exceeding the GSEs' maximum number of days to complete the process. The timeframes are supposed to reflect the typical time required for routine, uncontested foreclosures, and Stevens said the delays are "often for reasons unrelated to actions of the servicer."
Though he laid the blame for many servicing problems directly at the doorstep of regulators, Stevens also predicted there would be more trouble ahead for servicers from borrowers who received loan modifications at the beginning of the housing downturn. Many borrowers could redefault when they have to return to higher mortgage payment levels when their modification terms expire, he warned.
Servicers need to "stay ahead of the curve and identify borrowers who need help," Stevens said.