The Federal Housing Finance Agency confirmed that Fannie Mae and Freddie Mac are exploring possible changes to mortgage servicer compensation, but said implementation is unlikely before the summer of 2012.
The current model, in which servicers collect a minimum percentage of the loan balance annually, paid out of the interest stream, "decreases the flexibility necessary for optimal servicing of non-performing loans," FHFA said in a statement released Tuesday.
The government-sponsored enterprises will work with the agency and the Department of Housing and Urban Development to look at alternatives.
Late last week sources told National Mortgage News that the Government National Mortgage Association is now looking at the issue of servicing fees. On Friday NMN reported that GNMA president Ted Tozer is not considering an immediate change in servicing fees paid to loan processors, but called the talk about a GSE reduction in servicing fees an "interesting idea."
One government source told NMN that, "this issue is moving really fast right now."
Government regulators have been unhappy with how servicers have handled delinquent mortgages over the past three years. In some cases, Fannie and Freddie have yanked away MSR portfolios from one servicer only to place them with specialty servicers such as Nationstar and IBM.
Although FHFA is not ready to change the servicing contract at this time, one idea being floated is paying the servicer a flat cash rate no matter the loan size, wiping out or reducing the 25 basis point minimum. There's also talk of a tiered structure where the servicer receives a certain fee for performing servicing, but readily agrees to allow a GSE to yank problem servicing and shift it over to a specialty servicer.
The FHFA announcement on Tuesday was short on details but suggested that alternative methods could include a "service compensation" arrangement for nonperforming loans and a reduction or elimination of the minimum percentage fee for performing loans.
"As the recent problems in managing mortgage delinquencies suggest, the current servicing compensation model was not designed for current market conditions," Edward DeMarco, the FHFA's acting director, said in the press release. "The goal of this joint initiative is to explore alternative models for single-family mortgage servicing compensation that better address the needs of borrowers, servicers, originators, investors and guarantors."
The agency plans to solicit feedback over the next several months on possible alternatives.
