Freddie Mac Compensation Adds Murky Layer

Freddie Mac announced yesterday that it would double compensation paid to mortgage servicers for each workout that helps avoid foreclosure of a mortgage owned by Freddie Mac. In order to qualify for the reimbursement, the mortgage must be at least 90 days delinquent. An independent third party vendor must make the outreach and the servicer has to have had no prior contact with the borrower.

Beginning August 1st, compensation for repayment plans will jump from $250 to $500. Loan modification compensation will also double to $800. For pre-foreclosure sales (short sales), under which Freddie Mac accepts less than the full amount owed on a borrower’s loan, compensation will increase by $1000 to $2,200.

Foreclosures will be delayed up to 10 months from the due date of the last payment to the foreclosure sale, giving additional time to negotiate a repayment plan, mortgage modification, or complete a short sale.

The information given in the first 3 paragraphs is available in multiple articles, so it is hardly news at this point. I would like to know how Freddie Mac or the servicers believe this will work.

Define “Prior Contact”. Does a mortgage statement qualify as prior contact with the borrower? Will it eliminate the “Attempting to collect a debt” telephone calls and letters to borrowers with late payments? Will customer service be disrupted? Will servicers be disqualified from compensation because responsible borrowers contact them with questions or because their payment is or will be late?

Define “Independent third party vender”. Independent would indicate this key player is not receiving compensation from the servicer or Freddie Mac. How is this entity selected and approved, by the servicer, Freddie Mac, or the borrower? How is this additional layer of silt in murky water being compensated?

Many borrowers seek some type of loan workout directly. There are already too many borrower complaints about lack of information or cooperation from mortgage servicers. How is the borrower to know if their mortgage ultimately ended up with Freddie Mac? My mortgage statement identifies the name of the servicer (mortgage company) receiving my payments. The mortgage company name I see has “no real authority”.

Yield Point Spreads were charged and paid going into the mortgage and payment to a mortgage foreclosure specialist to stop a foreclosure. The borrower is out thousands of dollars that has contributed nothing to the initial quality of the mortgage loan or contributes to any arrearages if the mortgage is in default. At the least risk, the middlemen reap the benefits, in this case brokers, servicers, and negotiators. Borrowers, investors, lenders, and insurance bear the brunt of the mortgage meltdown.

How will the mortgages be reported? Will it delay the inevitable and be used as a means of misinformation? What effect will it have on identification of “under-performing” or non-performing mortgages? The timeline for mortgages in foreclosure will be delayed up to 10 months, so suddenly foreclosures are down. Will it help the house remain occupied thus saving management fees and protect it from vandalism? Will borrowers use it as an opportunity to keep their home or live in it gratis for 10 more months before hitting the streets?