Fannie Mae and Freddie Mac have agreed to "single track" delinquent borrowers for at least 120 days before servicers begin foreclosure processing under new loss mitigation guidelines sanctioned by the GSE regulator.
Even after a foreclosure referral, servicers will be required and compensated for continuing to work with borrowers to find a foreclosure alternative.
"The Federal Housing Finance Agency's [FHFA] directive to align the Enterprises’ policies for servicing delinquent borrowers should result in earlier servicer engagement to identify the best solution available for homeowners," FHFA acting director Edward DeMarco said.
He noted the new guidelines address "dual tracking," a controversial process where borrowers are being processed for foreclosure while they are in payment trials for a loan modification.
"The foreclosure process may not commence if the borrower and servicer are engaged in a good-faith effort to resolve the delinquency," FHFA said.
Fannie and Freddie servicers will also follow the same procedures and policies in working with delinquent borrowers, including the use of a "Uniform Borrower Solicitation Assistance Form."
Once the form is filled out by the homeowner, the servicer can evaluate the borrower for a HAMP modification and all other workouts and short sales.
"Alignment of key servicing practices between our two companies will help servicers … streamline their operations and more effectively target resources to distressed borrowers," Freddie chief executive Charles Haldeman said.
Servicers will receive a $1,600 incentive fee for completing non-HAMP workouts within 120 days of delinquent and only $400 if it takes seven months.
The GSEs will also penalize servicers for failing to meet certain benchmarks in customer response times and violations of foreclosure timelines.
"This initiative will direct servicers to reach families earlier, communicate more frequently and clearly, and provide relief," said Fannie president and CEO Michael Williams.
The GSEs says they will implement the changes over the summer.
"We will determine aggressive yet realistic effective dates," Fannie said.