The Federal Housing Finance Agency (FHFA) confirmed that Fannie Mae and Freddie Mac are exploring possible changes to mortgage servicer compensation, but 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," FHFA said in a statement released Tuesday.

The GSEs  will work with the agency and the Department of Housing and Urban Development to look at alternatives.

Late last week sources told National Mortgage News (NMN) that the Ginnie Mae is now looking at the issue of servicing fees. On Friday NMN reported that GNMA president Ted Tozer is not considering an immediate change in servicing fees paid to loan processors, but called the talk about a GSE reduction in servicing fees an "interesting idea."

One government source told NMN that, "this issue is moving really fast right now."

Government regulators have been unhappy with how servicers have handled delinquent mortgages over the past three years. In some cases, Fannie and Freddie have yanked away MSR portfolios from one servicer only to place them with specialty servicers such as Nationstar and IBM.

Although FHFA is not ready to change the servicing contract at this time, one idea being floated is paying the servicer a flat cash rate no matter the loan size, wiping out or reducing the 25 basis point minimum. There's also talk of a tiered structure where the servicer receives a certain fee for performing servicing, but readily agrees to allow a GSE to yank problem servicing and shift it over to a specialty servicer.

The FHFA announcement on Tuesday 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.

In other servicing news, a report card on servicing by megabanks is about about to hit Wall Street.

Federal banking regulators have nearly completed their reviews of the foreclosure processing problems at the nation's megabanks and will be briefing the companies' senior management on their findings soon."The next steps include detailed discussions with management at each institution on these findings," acting Comptroller of the Currency (OCC) John Walsh told the Financial Stability Oversight Council (FSOC) at a Tuesday afternoon meeting.

The interagency task force members also are preparing to levy "rigorous and consistent supervisor actions to rectify the problems identified," said Walsh.

Treasury secretary Timothy Geithner said the interagency task force is expected to submit a comprehensive report on its findings at the next FSOC meeting in February.  It appears the newly formed council that deals with systemic risk issues plans to make its report public.

As the FSOC chairman, Geithner said the report will include recommendations on "what we propose to do about these problems."

The secretary also noted that FSOC will be consulting with the state attorneys generals in formatting their recommendations to address the foreclosure and servicing problems.

Besides Treasury and OCC, FSOC members include the heads of the Federal Reserve Board, Federal Deposit Insurance Corp., Securities and Exchange Commission and Federal Housing Finance Agency.

Meanwhile, Richard Dorfman, managing director and head of Securities Industry and Financial Markets Association’s securitization group, commented on the FHFA’s newly announced joint initiative."SIFMA appreciates the [FHFA's] focus on finding long term solutions in the servicing industry which will balance the funding and customer service needs of servicers while preserving the liquidity of the important 'to be announced' market, all in the interest of providing the most accessible and affordable house financing for the American consumer," he said.

He added that the TBA market allows lenders to hedge risk, attract private capital, as well as lessen the cost of mortgage lending. 

Furthermore, he said that the sector is the key to a "successful, liquid, affordable, and national mortgage market" and also gives enough available capital for banks to lend. This is an particularly significant initiative, he said, considering the effect the housing market has on the broader economy. 

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