Fannie Mae could force Flagstar Bancorp Inc. of Troy, Mich., to sell some of its $658 million of mortgage servicing contracts at a loss, people briefed on the matter said.

Fannie, which owns or guarantees the mortgages, wants servicing on late or defaulted loans to be handled by specialists, said the people, who declined to be identified because the talks are private.

Flagstar would keep servicing Fannie Mae loans that remain current. It is among several lenders under pressure from the government-sponsored enterprise to pursue delinquent loans more aggressively, the people said.

The $16 billion-asset thrift company is controlled by MatlinPatterson Global Advisers LLC, which injected $350 million into Flagstar and is trying to shore up the lender's finances after it posted losses in seven of the past eight quarters.

"Large mortgage servicers are just generally overwhelmed," said Steve Horne, a former director of servicing risk strategy at Fannie who now heads Wingspan Portfolio Advisors LLC, a specialist in distressed-loan collections. They "really lack the tools to cope with the volume of defaults."

Flagstar does not break out the delinquency rate on the loans it services for Fannie Mae, and the amount of servicing contracts that may be divested is not settled because talks are still in progress, one of the people briefed on the matter said.

Andrew Siegel, a spokesman for MatlinPatterson, referred questions to Flagstar. The lender's chief financial officer, Paul Borja, did not return calls for comment. Brian Faith, a spokesman for Fannie Mae, said he could not comment.

Last year, after prodding from Fannie, GMAC Inc.'s home lending unit agreed to sell servicing contracts on $12.7 billion of loans.

Flagstar recently hired Carl Levinson, the former head of Citigroup Inc.'s consumer lending businesses, as a consultant to help it analyze mortgage operations, the people briefed on the matter said. Levinson did not return calls for comment.

Fannie and Freddie Mac were seized by the government last September and are getting more aggressive in loan modifications and collection efforts after $47 billion in combined first-half losses. Fannie Mae mortgages 90 days past due have almost tripled in the past year, to a record 3.9%.

As more loans go bad, Fannie Mae and Freddie Mac are concerned that banks that service their loans are not spending enough on staff and training to get the most from delinquent borrowers, Horne said. In addition to pushing some banks to relinquish servicing, the government-sponsored enterprises are channeling supplemental fees to loan workout specialists to help banks deal with late payers, he said.

"Seriously delinquent loans cost you far more money than you're earning on them, because you have to do a lot more work," said Bose George, an analyst at KBW Inc. in New York. "It may be neutral to Flagstar to get rid of them, if that's what Fannie wants, because they're no longer an income-generating asset."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.