GSEs Shooting for Decision on Servicing Fee Structure by Summer

""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mac"":http://www.freddiemac.com, along with their regulator and other government agencies, anticipate a decision on revamping mortgage servicers' payment structure by mid-summer, according to the ""Mortgage Bankers Association"":http://www.mortgagebankers.org (MBA).

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The trade group, however, is urging the GSEs and federal agencies to tread carefully and slowly in undertaking such an endeavor. MBA has sent a letter to the head of Fannie and Freddie's regulator, the ""Federal Housing Finance Agency"":http://www.fhfa.gov (FHFA), as well as ""Treasury"":http://www.treasury.gov and ""HUD"":http://www.hud.gov, requesting the parties take deliberate steps to ensure that any decision on the matter is not made in haste and the mortgage industry is allowed to weigh in on the proposal before it is finalized.

""The Mortgage Bankers Association is writing to express strong reservations about the stated timetable to revamp the fee structure for residential mortgage loan servicing,"" the letter reads. ""MBA is concerned with a rush to judgment on this critical and complex issue.""

FHFA has stated, and many industry experts agree, that the current fee structure does not accurately compensate servicers for the handling of defaulted loans â€" a detail that became painfully apparent in the aftermath of the hous-

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ing crisis as the number of delinquent loans began climbing to unprecedented levels.

The administration itself stated in the three-option proposal put forth in February for winding down Fannie and Freddie that one near-term reform must be to revise servicing compensation to ensure servicers have proper incentives to help borrowers avoid foreclosure.

MBA says, however, that it has not yet heard any preliminary discussions related to the ""default servicing fee.""

Currently servicers of Fannie Mae and Freddie Mac loans receive a 25-basis point minimum servicing fee. FHFA reportedly has outlined four alternatives to this structure, but MBA says the options put forth raise more questions than answers.

""When would the ‘default servicing fee' be triggered â€" at 30, 60, or 90 days delinquency? What is the appropriate amount of fee for each stage? How will the payment be structured, as a flat fee or by specific service? Will the servicing of defaulted loans transfer to a third party? What impact will this have on the guarantee fee structure currently in place?"" were among MBA's long list of concerns in the letter.

The trade group also questioned, given that the administration has announced that they plan to wind down Fannie and Freddie, ""is now the right time to rework the servicing model?""

MBA stressed that changes to the current servicing fee structure should be approached with extreme caution, research, and input from stakeholders.

""As recognized by the GSEs, the change to the servicing fee impacts far more than mere compensation,"" MBA wrote. ""It affects counterparty risk, servicing values, tax policy, representations and warranties, prepayment speeds, and rights to the asset.""