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Freddie Ranks Servicers in Conjunction With the Servicing Alignment Initiative

Tied to the agency’s Servicing Success Program, Freddie Mac’s new ranking system took off this month replacing the traditional performance tiers with more realistic valuations that open the door for improved servicer activity reviews and planning of needed remedial action.

The new monthly ranking of a servicer’s performance and company profile is based on points earned during the prior month. A ranking is unacceptable when the scorecard places the servicer in the bottom 25% of all ranked servicers—which is when Freddie will review potential corrective intervention.

The agency said servicing performance monitoring and assessment requirements are in line with the business objectives of the GSEs, investors and servicers. The first SSP-based rankings featuring data from August will be posted online by the end of the first week of October.

Freddie executives expect the SSP approach to servicer performance will mark “the beginning of a significant advance” in the efficiency of the servicing process management, which is why later this year Freddie plans to expand the program’s reach.

Added features include the Servicer Success Rewards and Remedies program designed to help integrate SSP with the Servicing Alignment Initiative, a joint Freddie Mac-Fannie Mae effort coordinated by the agencies’ conservator, the Federal Housing Finance Agency, to help create more consistency between the two GSEs.

In accordance to the Servicing Alignment Initiative, the implementation of SSP is changing how all aspects of servicing Freddie Mac loans are defined and measured. SSP uses “defined metrics, benchmarks, requirements, financial incentives, compensatory fees” and other components to provide a broad and in-depth analysis of the servicing of performing and nonperforming loans. Another stated goal is to keep open the dialogue about solutions for servicing challenges and promote best practices.

Servicer benefits include “a mutual understanding” and open dialogue about performance expectations, specific goals, improvements in internal quality control reviews of default-management activity, and loan-level data access and reporting tools.

The program includes three main sections: a scorecard, file reviews, rewards and remedies.

The Servicer Success Scorecard lists assessment requirements and measurements in the categories deemed necessary to determine monthly results and rankings. The scorecard package includes loan file reviews and other information that reflect the specifics of a servicer’s business practices.

For example, the scorecard for servicers with small- to midsize servicing portfolios contains measurements accessed each month in the Servicer Performance Profile using the default management criteria announced in March. Large servicers have in addition individualized objectives and goals based on their portfolio size and Freddie’s Servicer Success Account Plan. They must provide information about their individualized requirements and Servicing Account Plans where as a rule mortgage-servicing providers explain foreclosure prevention and cost related objectives.

Such criteria are designed to help assess default management and loss mitigation practices applied by the servicers and how they report data to investors.

The new ranking structure is based on the point summary servicers receive through the scorecard for their performance in each criterion. A servicer’s accumulated points are further used to compare their performance with that of their peers in the investor reporting and the default management category of the scorecard. However, scorecard results in the default management category are ranked “only if the servicer services a minimum amount of seriously delinquent mortgages for Freddie Mac.”

The “early collections roll rate” criterion represents the difference between the share of 30-day delinquent mortgages that continue to be delinquent the next month with the share of normalized benchmark delinquent loans—pooled together based on key mortgage characteristics selected by the servicer—that transition to a further state of delinquency over the same three month period. This criterion excludes HAMP trial period plans.

The “late collections roll rate” criterion is the share of mortgages 90 days or more delinquent that transition to a further state of delinquency in the next month, over a rolling three-month time period. HAMP trial period plans and mortgages in foreclosure are excluded.

The “workout ratio” criterion evaluates the ratio of various types of workouts—HAMP loans during a trial period, non-HAMP workouts, short sales, deed-in-lieu, or repayment plans—completed in a given month on mortgages that are 60 days or more delinquent from the prior month, over three months.

The “seriously delinquent mortgages past foreclosure referral standard” criterion helps measure the percentage of mortgages in a servicer’s portfolio that are 90 days or more delinquent but nonetheless, the delays have not exceeded the foreclosure referral standards identified in the Freddie Mac guide over a rolling three-month period.

Similarly, the “seriously delinquent or foreclosure mortgage inventory past standard” criterion measures the ratio of seriously delinquent mortgages that have exceeded said foreclosure referral standards in a servicer’s portfolio and specifies “how far over standard those mortgages are on average,” also over three months.

Scorecards and rankings are confidential and communicated individually. They are can be accessed in the same Freddie website servicers accessed Servicer Performance Profile data in the past.