The FHFA says it is updating some guidelines to ensure servicers work with delinquent borrowers before they attempt to foreclose on their homes.
Considering the foreclosure crisis started four years ago and more than three million families already have lost their homes, I guess the best compliment I can give the agency is: better late than never.
Here are some of the highlights of what the new rules will require, according to the Federal Housing Finance Agency. The rules will apply to servicers working on behalf of Fannie Mae and Freddie Mac.
- Servicers will be required to "contact borrowers as soon as they become delinquent and focus solely on remediating that delinquency."
- Servicers may not start the foreclosure process "if the borrower and servicer are engaged in a good-faith effort to resolve the delinquency." (Another "good faith" rule? Here is a sign regulators have not learned much from this crisis.)
- Servicers must review each case "to ensure a borrower has been considered for foreclosure alternatives before the loan is referred for foreclosure." (Weren't they supposed to be doing this already?)
- Here is something new: Servicers will receive "incentives" to do the right thing. They will get $1,600 for each "closed workout" for mortgages that are 120 days delinquent or less and $1,200 for loans that are 121-210 days delinquent. And even after the "foreclosure processing begins, financial incentives are provided to encourage servicers to continue to help borrowers pursue a foreclosure alternative," according to a statement by the FHFA.
Since the servicers will be receiving monetary incentive for following the rules, regulators plan to apply the same concept when they don't follow them.
The rules "will establish uniform servicing requirements as well as monetary incentives for servicers that perform well and penalties for those that do not," according to the statement.
When I read that I was somewhat encouraged because I don't believe in guidelines without enforcement.
But when I looked for more details on the "penalties," I came across something that just doesn't add up.
Servicers will be given timelines to follow from when they refer a delinquent loan to a law firm to pursue foreclosure to when they sell the property. If the servicers fail to meet the foreclosure deadlines they will be assessed a fee, unless it's a "permissible delay."
Just when servicers are under extreme scrutiny for choosing speed over accuracy during the foreclosure process, regulators come up with a rule that apparently will require them to speed up foreclosures?
I guess at least servicers will be able to say they are just following the rules when they get criticized.