FHFA Actions to Manage Enterprise Risks from Nonbank Servicers Specializing in Troubled Mortgages (AUD-2014-014) – 07/01/2014

“Banks that traditionally service mortgage loans backed by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (the Enterprises) have been selling the rights to service troubled loans (e.g., delinquent or in default) in bulk to new companies specialized to handle them. Often, the Enterprises are engaged in such transfers to these nonbank special servicers. Nonbank special servicers currently hold approximately $1.4 trillion in mortgage servicing rights out of a nearly $10 trillion market. The companies’ servicing business concentrates on these labor-intensive loans, so the Enterprises  have approved such sales to limit resulting losses. However, these new servicers have less  stringent regulatory and financial requirements than banks, so, as part of a review of problems identified with one such servicer, the Office of Inspector General (OIG) assessed the Federal Housing Finance Agency’s (FHFA or Agency) controls to ensure the Enterprises monitor nonbank special servicer performance and mitigate related risks.”