Freddie & Fannie Up Workout Incentives

Freddie Mac and Fannie Mae are raising the incentives they pay for mortgage workouts to ensure hurried servicers are focused on helping their troubled borrowers get back on track and avoid foreclosure.

Freddie said it has doubled the incentives it pays servicers effective Aug. 1. Now Freddie servicers can earn $500 for a repayment plan, $800 for a loan modification or $2,200 for a short sale.

"We recognize that it is a difficult market out there," said Robert Padgett, Freddie's director of nonperforming loans. "We think that by increasing the payments to our servicers they will be able to help the borrowers more frequently."

Fannie said it will double its cash incentives for repayment plans to $400 and begin paying $700 for loan modifications.

"These loss mitigation incentives encourage our servicers to implement workout solutions and drive better processing and response time," said Fannie vice president Jason Allnut.

Fannie also said it will pay $1,000 to $1,500 for a short sale and $1,000 for a deed-in-lieu. The mortgage giant is going to provide more details about its incentive program later this summer, a Fannie spokewoman said.

Mr. Padgett noted that short sales can be complex and time consuming because there are so many parties involved in the transaction - the buyer and seller, real estate agents, second-lien holder and mortgage insurance representatives.

The $2,200 servicing incentive "will help offset some of the costs of negotiating these deals," he said.

A loan modification is not as difficult because there are fewer parties and generally everyone is trying to improve the borrower's standing by making the payments more affordable, even the second-lien holder in most cases.

But in a short sale, there are losers - the investor, second-lien holder and mortgage insurance company are taking a hit.

And the second-lien holder can hold up the transaction because the buyer wants a clear title to the property. "On short sales, we will pay a second-lien holder some money against the principal but not nearly the full amount due," the Freddie servicing director said.

Meanwhile, Freddie prefers loan modifications to extended prepayment plans that exceed six months because they generally have a greater likelihood of failure. "If it takes longer than six months, we are suggesting to our servicers that they look at an alternative more likely to cure the delinquency," Mr. Padgett said. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

Next in News ►