The “Fire is Lit” under mortgage service providers

The article below outlines how Fannie Mae is going to take action to force mortgage servicers to process delinquent loans in a more efficient and cost effective manner. I have hope that these Fannie Mae imposed fines will create more streamlined & timely loan modifications and short sale transaction closings.

Fannie Mae gets tougher on U.S. mortgage services
Sep 1, 2010 10:44 EDT
NEW YORK, Sept 1 (Reuters) – Fannie Mae (FNMA.OB: Quote, Profile, Research, Stock Buzz), the
largest provider of funding for U.S. residential mortgages,
will begin demanding compensation from mortgage servicing
companies that fail to properly handle troubled mortgage loans,
the company announced late on Tuesday.

The government-controlled company also said it may begin
conducting reviews of loan files, processes and procedures used
by the servicers, in another sign it is growing impatient with
the firms that collect and distribute homeowners’ payments.

Mortgage servicers have come under intense scrutiny as they
have struggled with record delinquencies and foreclosures.
Their efforts to ease payments on loans to avert default have
fallen short in many cases, playing some role in disappointing
results of a federal program to refinance or modify mortgages.

“A compensatory fee not only compensates Fannie Mae for
damages but also emphasizes the importance placed on a
particular aspect of a servicer’s performance,” Fannie Mae said
in an announcement to servicers.

“In some cases, a compensatory fee will relate to the
action a servicer took, or failed to take, in handling a
specific mortgage loan,” it said.

Fees will be applied in various instances, including
failure to provide access to records and delays on completing
foreclosures and selling foreclosed properties.

More aggressive action by mortgage servicers could help
ease burdens on Fannie Mae, whose losses on loans it guarantees
or owns forced it into regulator’s hands in September 2008. It
has required some $86 billion in taxpayer funds since then.

Fannie Mae, which uses hundreds of servicers, did not
specify any that might have prompted the announcement but has
identified rising stress at the firms. A spokeswoman declined
to comment beyond the announcement.

“The growth in the number of delinquent loans on their
books of business may negatively affect the ability of these
counterparties to continue to meet their obligations to us in
the future,” Fannie Mae said in its quarterly filing with the
Securities and Exchange Commission last month.