Fannie Preparing New Guidelines to Discourage Abuse
Fannie Mae is preparing to issue new servicing guidelines in a few weeks to clarify its policies and make sure its servicers don't engage in abusive practices.
The new guidelines will be "closely aligned" with the provisions of the Fairbanks Capital Corp. settlement agreement, according to Fannie Mae deputy general counsel Jon Seward. The guidelines will apply to all loans, not just B&C credit quality loans.
In November, the Salt Lake City subprime servicer agreed to implement new policies and procedures as part of a $40 million settlement with the Federal Trade Commission.
The FTC had filed a complaint against Fairbanks alleging the company systematically failed to post monthly mortgage payments promptly, charged inappropriate late fees, prematurely referred accounts to collections and failed to respond to or resolve consumer complaints.
The FTC-crafted settlement provisions are generally considered to be a model for "best practices" that other servicers should adopt.
The Fannie servicing guidelines will address loss mitigation, customer service, fees and charges, posting of payments, escrows, force-placed insurance and credit reporting, Mr. Seward told a National Community Reinvestment Coalition meeting.
He noted that a number of servicers have told the press they follow Fannie Mae and Freddie Mac guidelines as a way to distance themselves from Fairbanks' practices. So Fannie Mae decided it should clarify and make additions to its guidelines.
The attorney also told the community development organization that Fannie Mae is "stepping up" its pre-purchase reviews of subprime mortgage pools to make sure it is not helping predatory lenders.
"It is very important to Fannie Mae that we are not providing liquidity that will go to predatory lenders who are ripping off consumers," Mr. Seward said.
Fannie will sample a statistically significant number of loans in each pool to make sure they are in compliance with its predatory lending guidelines. Fannie is planning to issue expanded guidelines in a few weeks.
"To the extent that the loans do not comply, we will kick them out. Or if it exceeds our tolerance we won't go forward with that deal," Mr. Seward said.
The new predatory lending guidelines are expected to ban mandatory arbitration clauses, limit the duration of payment penalties to three years and ban balloon loans with a term of less than seven years.
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