Regulators to Restructure Fees for Mortgage Servicers

Tuesday, 18 Jan 2011 02:04 PM

 

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U.S. housing regulators said they will seek to implement a new fee system and standards for mortgage-servicing companies by the summer of 2012.

The Federal Housing Finance Agency has directed Fannie Mae and Freddie Mac to work with the Department of Housing and Urban Development to explore ways to improve mortgage servicing for home-loan borrowers, the agency said in a press release today.

Servicers currently charge a fee that is added to a borrower’s interest rate. That one-size-fits-all compensation system “decreases the flexibility necessary for optimal servicing of non-performing loans,” FHFA said in its release.

One alternative would be to impose a fee-for-service structure for non-performing loans rather than a single flat rate, the agency said.

“The current servicing compensation model was not designed for current market conditions,” agency Acting Director Edward DeMarco said in a statement in the press release.

U.S. Treasury Secretary Timothy F. Geithner and Housing and Urban Development Secretary Shaun Donovan, in a letter to DeMarco, said they would work with his agency to address “structural flaws” in the system.

Mortgage servicers have been accused of failing to act swiftly on loan modifications and foreclosures and have been blamed for slowing the housing recovery. Banking and housing regulators are investigating mortgage servicers’ role in the robo-signing scandal, in which lawyers and their employees endorsed thousands of foreclosure affidavits without checking their accuracy.

The Federal Deposit Insurance Corp., led by Chairman Sheila Bair, had sought to include new servicing standards in rules on risk retention requiring lenders to keep a stake in debt they sell or securitize. The FDIC, Treasury and other agencies are expected to issue a proposed risk-retention rule by next month.

Bair was supported by several analysts, investors and economists who had urged regulators to act quickly on servicing standards.

© Copyright 2014 Bloomberg News. All rights reserved.

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