The Federal Housing Finance Agency confirmed that Fannie Mae and Freddie Mac are exploring possible changes to mortgage servicer compensation, and said implementation is unlikely before the summer of 2012.
The current model, in which servicers collect a minimum percentage of the loan balance annually, paid out of the interest stream, "decreases the flexibility necessary for optimal servicing of non-performing loans," the FHFA said Tuesday. The government-sponsored enterprises will work with the agency and the Department of Housing and Urban Development to look at alternatives.
Last week
The FHFA announcement was short on details but suggested that alternative methods could include a "service compensation" arrangement for nonperforming loans and a reduction or elimination of the minimum percentage fee for performing loans.
"As the recent problems in managing mortgage delinquencies suggest, the current servicing compensation model was not designed for current market conditions," Edward DeMarco, the FHFA's acting director, said in the press release. "The goal of this joint initiative is to explore alternative models for single-family mortgage servicing compensation that better address the needs of borrowers, servicers, originators, investors and guarantors."
The agency plans to solicit feedback over the next several months on possible alternatives.
"It is clear that the mortgage servicing compensation model is broken and should be fixed," Treasury secretary Tim Geithner and his HUD counterpart Shaun Donovan wrote in a letter to DeMarco supporting the study of alternatives. "The current model has not motivated mortgage servicers to invest the time, effort, and resources needed to fully explore all options to help delinquent borrowers and avoid foreclosures."
