It appears unlikely that Freddie Mac will take a hard line on enforcing contracts with servicers that have identified foreclosure documentation defects in recent weeks — though it believes some of those contracts may have been violated.
"While we believe that our seller/servicers would be in violation of their servicing contracts with us [if] they improperly executed documents in foreclosure or bankruptcy proceedings…it may be difficult, expensive and time-consuming for us to enforce our contractual rights," Freddie said in its third-quarter report filed with the Securities and Exchange Commission Wednesday.
What's more, Freddie said, trying to enforce those rights could hurt its relationships with the big lenders, "some of which are among our largest sources of mortgage loans."
More than half of Freddie's purchase volume comes from just three lenders: Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. — all of which have admitted to finding flaws in the execution of foreclosure documents, namely, that affidavits were not processed in the presence of a notary or signed by a person with first-hand knowledge of the information in them, as required by law.
Freddie warned that any delays in foreclosures related to the document deficiencies could significantly raise its costs and lead to bigger losses.
Recently, National Mortgage News reported that Fannie Mae is keeping track of how much the foreclosure crisis is costing it in terms of increased carrying costs on REO and plans to pass on some of that expense to its servicers. (Fannie would not comment.)
