Housing Wire recently reported that the Federal Housing Finance Agency (FHFA) has directed the two government sponsored agencies, Fannie Mae and Freddie Mac to align their guidelines for servicing delinquent mortgages.
Previously, they maintained different requirements for how their mortgage servicers would treat loan backed by Freddie and Fannie. This new push for alignment may be the death knell for the practice of "dual tracking." Dual tracking has been a common practice by servicers of working on a loan modification at the same time as it is purshing a loan towards foreclosure. The new FHFA forced allignment will push servicers into engaging the borrower as soon as they become delinquent and will prevent the initiation of the foreclosure process if the borrower and servicer are working toward solving the delinquency in a good-faith effort.
Housing Wire furtehr reports that "under the new requirements, servicers must engage in a single track for considering foreclosure alternatives up to the 120th day of delinquency" and "must also perform a formal review of the case to confirm the borrower was considered before starting foreclosure. Even then, servicers are required to continue work with the homeowner on other alternatives."
Servicers for both Fannie and Freddie will also apprewarded and penalized the same under the new guidelines.
"FHFA’s directive to align Enterprise policies for servicing delinquent mortgages should result in earlier servicer engagement to identify the best solution available for homeowners, given their individual circumstances," said FHFA Acting Director Edward DeMarco.
Freddie Mac CEO Ed Haldeman said: "Alignment of key servicing practices between our two companies will help servicers . . . to streamline their operations and more effectively target resources to distressed borrowers . . . For example, it will simplify the process for seeking help by giving borrowers one application to fill out and servicers one application to review for all Freddie Mac loan modifications and foreclosure alternatives."
This allignment, if actually followed by Fannie and Freddie-backed servicers will have a huge impact for borrowers seeking to modify the terms of their loans. Indeed, the dual-track process is precisely what has led to many unsuspecting homeowners losing their homes, as they never understood that dual tracking was the policy. Perhaps the common lament of "how could they sell my home, I was in the middle of a loan modification" may be a thing of the past. I won’t be holding my breath on that one.