Fannie Mae gets tougher on mortgage servicers

NEW YORK Wed Sep 1, 2010 10:55am EDT

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NEW YORK (Reuters) - Fannie Mae (FNMA.OB), the largest provider of funding for U.S. residential mortgages, will begin demanding compensation from mortgage servicing companies that fail to properly handle troubled mortgage loans, the company announced late on Tuesday.

The government-controlled company also said it may begin conducting reviews of loan files, processes and procedures used by the servicers, in another sign it is growing impatient with the firms that collect and distribute homeowners' payments.

Mortgage servicers have come under intense scrutiny as they have struggled with record delinquencies and foreclosures. Their efforts to ease payments on loans to avert default have fallen short in many cases, playing some role in disappointing results of a federal program to refinance or modify mortgages.

"A compensatory fee not only compensates Fannie Mae for damages but also emphasizes the importance placed on a particular aspect of a servicer's performance," Fannie Mae said in an announcement to servicers.

"In some cases, a compensatory fee will relate to the action a servicer took, or failed to take, in handling a specific mortgage loan," it said.

Fees will be applied in various instances, including failure to provide access to records and delays on completing foreclosures and selling foreclosed properties.

More aggressive action by mortgage servicers could help ease burdens on Fannie Mae, whose losses on loans it guarantees or owns forced it into regulator's hands in September 2008. It has required some $86 billion in taxpayer funds since then.

Fannie Mae, which uses hundreds of servicers, did not specify any that might have prompted the announcement but has identified rising stress at the firms. A spokeswoman declined to comment beyond the announcement.

"The growth in the number of delinquent loans on their books of business may negatively affect the ability of these counterparties to continue to meet their obligations to us in the future," Fannie Mae said in its quarterly filing with the Securities and Exchange Commission last month.

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