The government-sponsored enterprises are looking beyond mortgage servicers in an effort to step up workouts of distressed home loans.
Freddie Mac said Thursday that it had recruited nonprofits around the country to run walk-in centers and phone campaigns that reach out to troubled borrowers who never contacted their servicers or gave up in frustration. And Fannie Mae, which already works through local housing agencies to help borrowers, said it plans to go a step further by opening its own offices to directly counsel borrowers.
Once counseled, a consumer will still need to go back to the servicer for a workout. But the two GSEs' programs underscore the growing, widespread dissatisfaction with servicers' efforts to prevent foreclosures.
For several years, consumer advocates have complained that servicers are hard to reach, slow to respond, and inconsistent in the answers they give borrowers.
Freddie framed the issue more diplomatically.
"Servicers can bring the solution, but consumers need a little bit more," said Christina Diaz-Malone, the GSE's director of corporate relations and housing outreach. "They need someone to give them a little more information."
Bruce Marks, chief executive of Neighborhood Assistance Corp. of America, a housing nonprofit, said the GSEs rely too much on servicers for workout efforts to have a significant impact.
"Servicers' business model is broken," he said. "The loss-mitigation model they've been using for 35 years, it's a very good model for collecting money, remitting it to investors and foreclosing. And they refuse to expand that model to modifications on a large scale."
Amy Bonitatibus, a spokeswoman for Fannie, said Thursday that the company is "finalizing new initiatives with local housing counselors that will include dedicated staff and facilities to directly serve our borrowers in hard-hit markets." She would not say how many employees or offices Fannie would dedicate to this program.
Years ago, Fannie's approach might have stirred up accusations of "mission creep." In the 1990s and early 2000s, critics — including big banks — accused the GSEs of trying to compete with lenders in the primary market.
But today, with public hostility toward large financial institutions at a boil, it is hard to imagine any of them balking at something that might prevent foreclosures.
"Fannie Mae has every right to protect the quality of its portfolio and the loans that are in its securities," said Terry Wakefield, president of Wakefield Co., a Grafton, Wis., consulting firm that focuses on the residential mortgage industry. "That's their underlying obligation."
However, he said, "I just don't see how establishing physical facilities and working with local community groups is going to change the fundamentals of the problem. And that is the loans should have never been made in the first place."
Freddie's "borrower help centers" in Chicago, Phoenix, San Bernardino, Calif., and Washington will be located at the respective offices of its nonprofit partners and be staffed by the nonprofits' employees.
The organizations will contact Freddie Mac borrowers through letters and phone calls, but the walk-in centers allow anyone behind on their mortgage payments or facing foreclosure to seek assistance.
"Actually having somebody on the ground to help borrowers get the documents they need … is significant," said Phillip Comeau, a mortgage industry consultant in Great Falls, Va., and a former Freddie executive.
Of course, borrowers often fail to return the documents, and servicers in turn have been blamed for losing documents, and for generally being understaffed.
"The reality is that not enough loans are being modified," said Marcia Griffin, founder and president of HomeFree-USA, a Washington nonprofit that is working with Freddie. "But the important thing is to come up with new strategies to ensure we're able to reach people."
Freddie's partnerships with nonprofits are the latest in a series of steps that suggested it found primary servicers' performance wanting. Last year the GSE hired Ocwen Financial Corp. to work through 5,000 seriously delinquent mortgages that other companies had been servicing. Freddie also contracted with Home Retention Services Inc. of Houston to assess borrowers' eligibility for a modification and gather documentation, and Consumer Credit Counseling Services of Atlanta and San Francisco to contact borrowers at risk of default.
"There's still a tremendous volume," said Brad German, a Freddie spokesman. "By having the nonprofits more involved in helping the borrowers navigate through the complexities, it ideally will take some of the load off the servicers."