It would appear that the days of Fannie Mae and Freddie Mac being “kinder and gentler” owners of problem mortgages could be coming to an end.
The two government-controlled mortgage investing giants will continue to press for loan modifications by their seller/servicers, but when it comes to "unsaveable" borrowers, they may be at the end of their rope. Or so it seems.
Over the past few weeks, rumors have circulated among foreclosure attorneys and third-party vendors that the next couple of months might bring new pressure from the GSEs, resulting in hundreds of thousands of additional foreclosures being pushed through the courts.
One vendor who has worked with the GSEs described the situation as such: "There's been an attitude change there of late and it's boiled down to this: 'We need to get the taxpayer's money back for the Treasury.'"
Jeff Freud, who runs LoanMarket.net, a loan auction website for troubled mortgages, said he, too, has noticed the change in GSE attitudes regarding foreclosures. "I think they are both tired of playing games," he said.
Although both Fannie and Freddie declined to comment on their foreclosure volumes going forward, newly released numbers from their regulator show GSE foreclosures jumped by 12% in the second quarter to 275,000 units.
Ironically, the higher foreclosure figures come at a time when loan modifications by GSE seller/servicers are on the rise. But will improving results on loan restructurings be enough to slow the increase in foreclosure numbers? Time will tell.
But as Freud pointed out, the game playing has stopped. A few weeks ago Fannie established new foreclosure time frames for four states — Florida, Maryland, Nevada and New York — telling their seller/servicers they face potentially steep fines if they cannot complete the task in a timely manner. (All four are high volume foreclosure/delinquency states.)
In a new servicing announcement Fannie sent to seller/servicers, the GSE increased what it calls the "allowable time frame" for Florida foreclosures to 185 days, a 35-day increase. Fannie said it added days "to allow for a mediation referral prior to a foreclosure suit being commenced."
The new foreclosure deadline for Maryland is 90 days. For Nevada it's 150.
Fannie gave New York State two time frames: 300 days for upstate, but 420 days for New York (the five boroughs) and Long Island.
The servicing bulletin (SVC-2010-12) excludes information on the prior time frame for these states. (It was issued by Gwen Muse-Evans, vice president and chief risk officer for credit portfolio management.)
The GSE specifies that these new time frames are for "routine foreclosure proceedings." The clock starts ticking on the count when the servicer refers the loan to an attorney for foreclosure.
In late August news broke that the GSEs were going to get tougher on foreclosures but few details were available publicly. Fines will be assessed to mortgage bankers based on the outstanding loan balance. If a servicer submits a late “REOgram” it faces a fine of $100 a day.
Regarding the new Fannie bulletin, it might appear that the GSE is actually giving servicers more time to foreclosure on bad loans. But a Midwest-based executive whose firm buys troubled mortgages sees it differently. He said Fannie is being more specific so servicers cannot make excuses and keep putting off foreclosure decisions.
"If the servicer screws around and something goes wrong, they lose their place on the [foreclosure] docket," he said.
Of course, if more properties go into foreclosure it will increase the supply of homes for sale and (in theory) cause prices to drop further — something everyone in mortgage banking and housing fears. But with mortgage rates at a five-decade low, perhaps the GSEs are betting on home buying picking up a real head of steam over the next few quarters. After all, Americans love a good sale.