FM Commentary

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FM Commentary

Purchase and Transfer of Servicing Rights is Sensible, Proactive Portfolio Management

Terry EdwardsThe overwhelming majority – more than 93 percent – of Fannie Mae’s single-family conventional mortgages were paid on time as of the end of September, 2011. For loans that are at a heightened risk of becoming or remaining delinquent, we often seek ways to improve servicer performance in providing homeowners with foreclosure prevention options and executing on loss mitigation alternatives.

One key strategy we have used is the purchase and transfer of servicing responsibilities for high foreclosure-risk loans from traditional servicers to specialty servicers. We believe this approach will help borrowers to either avoid or resolve delinquency and steer clear of foreclosure. It provides significant benefits and makes good economic sense because:

  • Specialty servicers are better positioned to offer high-touch assistance to homeowners.
  • Servicing transfers are intended to benefit Fannie Mae – and ultimately taxpayers – by lowering defaults and credit-related losses among the affected loans.
  • Transfers can help servicers by freeing up employees they can devote to their remaining Fannie Mae portfolio, which we believe will improve the credit performance on those loans too.

We have employed servicing transfers for troubled loans for several years, yet recent transfers have generated questions about Fannie Mae’s motivation for such transfers and the potential risks. Our motivation is simple – Fannie Mae already owns the credit risk on these loans. We are working to reduce that risk by leveraging servicers that are better geared to handle difficult cases and help homeowners avoid foreclosure wherever possible. Time is of the essence in terms of improving outcomes for borrowers and protecting American taxpayers.

It is important that each servicing transfer proceeds in a way that is as smooth and efficient as possible in order to avoid any missteps that could affect or confuse the borrower or unnecessarily complicate the transfer. For this reason, where possible, we work with the original servicer to facilitate the transfer of servicing obligations through a negotiated process. However, where necessary and warranted, we will consider terminating a servicer’s contract in order to protect our rights.

We currently work primarily with four specialty servicers who are helping us reduce credit losses by working diligently to contact and assist homeowners with the solution that best addresses their situation. These servicers possess the infrastructure and experience needed to take on the volume of business we send their way.

We carefully consider the impact of our portfolio management decisions. We believe that better servicing of at-risk loans through targeted servicing transfers is smart portfolio management. Ultimately we believe this strategy will provide better results for homeowners and taxpayers, and we are committed to achieving those goals.  

Terry Edwards
Executive Vice President
Credit Portfolio Management

January 24, 2012

The views expressed in these articles reflect the personal views of the authors, and do not necessarily reflect the views or policies of any other person, including Fannie Mae or its Conservator. Any figures or estimates included in an article are solely the responsibility of the author.

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