Mortgage Giants To Boost Incentives For Helpful Lenders
Friday, August 1, 2008
Both mortgage funding giants have faced mounting losses related to the housing crisis and said the incentives should encourage lenders to do more to help borrowers and thus reduce costs in the long run.
Freddie Mac will pay lenders $500, up from $250, to arrange a repayment plan that allows a homeowner to make up missed payments over time. If the lender modifies the loan, reducing the interest rate, for example, they will receive $800, up from $400. The new payment structure goes into effect today.
"We are taking these steps because we want to reinforce the tremendous importance of workouts and reward their use," Ingrid Beckles, Freddie's vice president of servicing and asset management, said in a statement.
Fannie Mae would double the amount it pays lenders for a repayment plan to $400 and increase the amount for loan modifications to $700. Fannie's plan also prohibits lenders from charging borrowers fees, which can top $1,000, to modify their loan. The firm said it would release details of its plan later this summer, when it would go into effect.
Both Fannie and Freddie also will increase incentives for lenders that allow "short sales," when a borrower sells a home for less than the mortgage balance. Under Freddie's plan, the lender will be paid up to $2,200 for a short sale, up from $1,100. Fannie Mae will pay lenders between $1,000 to $1,500.
The cash infusions are a recognition of the increasing cost of the mortgage servicing industry's efforts to help distressed homeowners, said Vicki Vidal, an associate vice president at the Mortgage Bankers Association, an industry group. "They want to provide the servicers the financial support to continue to conduct the loss-mitigation efforts," she said.
The additional cash could also trickle down to housing counselors. For the first time, Freddie will also reimburse lenders for door-to-door outreach efforts. Lenders often pay nonprofit housing counselors to contact borrowers by phone, mail or by knocking on their doors. Lenders will be eligible for $200 if a door-knocking effort results in the borrower avoiding foreclosure.
"It's a huge validation because there have always been some questions about whether these community grass-roots efforts work," said Marietta Rodriguez, national director of homeownership programs at NeighborWorks America, a nonprofit based in the District.