FEDERAL

Siloed Practices: Harmonizing Business
and Sharing Information
As part of its larger effort to prepare the housing
finance market for reform, FHFA has undertaken
several strategic initiatives to standardize and
harmonize various aspects of the secondary mortgage
market.
For example, in May 2010, FHFA announced the
Uniform Mortgage Data Program, a long-term joint
effort with the enterprises to create uniform data
standards and collection processes. FHFA believes
that a common framework will result in better lender
efficiency and enterprise risk management. Likewise,
common data standards are expected to lead to
appraisers, lenders, servicers, etc., submitting more
consistent data. The enterprises will deploy the data
standards program in phases through a common
platform that will include stakeholder input. 207
Also, in September 2012, FHFA announced that
the enterprises will launch a new representation
and warranty framework for conventional loans
sold or delivered after 2012. The framework aims
to limit and clarify lenders’ repurchase exposure
and liability on mortgages originated in 2013 and
thereafter. It is also part of a broader series of strategic
initiatives directed toward seller/servicer contract
harmonization, as outlined in FHFA’s A Strategic Plan
for Enterprise Conservatorships. 208
For example, FHFA has instructed the enterprises
to establish a single, consistent set of procedures
for servicing mortgages they own or guarantee.
Key elements of this Servicing Alignment Initiative
include streamlined requirements, simplified loan
modifications, and performance-based incentives
for servicers to focus them on reviewing foreclosure
alternatives in a timely manner. 209 According to
the FHFA Acting Director, this alignment “should
result in earlier servicer engagement to identify the
best solution available for homeowners, given their
individual circumstances.” 210
As part of these solutions, the initiative requires
servicers to focus on remediating delinquencies. For
example, foreclosure cannot start while borrowers and
servicers are engaged in good-faith efforts to resolve
delinquencies. Further, servicers must conduct formal
reviews to ensure they have considered alternatives
to foreclosure before starting the process. Even after
foreclosure begins, servicers have financial incentives
to keep helping borrowers pursue an alternative. 211
In addition to harmonizing operations, the
enterprises can benefit from sharing information
and consistent application of servicing rules. For
example, during our review of reported abuse by law
firms processing enterprise foreclosures, we identified
instances where Freddie Mac terminated problematic
law firms while Fannie Mae continued to do business
with some of them. 212 Similarly, another report
disclosed that FHFA does not facilitate information
sharing regarding high-risk counterparties even
though the enterprises may use the same ones. As of
September 2011, the two enterprises had separately
identified over 300 servicers as high risk with a
total risk exposure of $7.2 billion. 213 Although the
enterprises separately monitor high-risk servicers,
they do not communicate with each other about
them, which can leave each vulnerable to the risks
the other has identified. Indeed, in January 2000, a
Fannie Mae executive discovered that a counterparty
that worked with both enterprises had sold the same
loans to more than one entity including Fannie Mae.
In April 2002, Fannie Mae ended its relationship
with the company due to possible fraud, but it did
not report the termination to law enforcement or
outside the enterprise. FHFA’s predecessor agency was
aware of the termination but not its basis. 214
Consequently, Freddie Mac continued to conduct
business with the company without intervention.
Semiannual Report to the Congress • April 1, 2013–September 30, 2013 69