Fannie Mae and Freddie Mac are leaving money on the table when it comes to deficiency balances on foreclosed mortgages with borrowers who can afford to pay them off.
From January 2010 through June 2012, Fannie’s vendors didn’t attempt to collect deficiency balances on of 14,960 foreclosure sales because states’ statutes of limitation didn’t allow enough time to pursue, while the statute of limitations on another 29,692 accounts had already expired.
At Freddie, nearly 58,000 foreclosures with estimated deficiencies of around $4.6 billion were not even referred to collection vendors. On 6,000 of the foreclosed loans, delays in the vendors’ evaluation process limited Freddie’s opportunity to pursue deficiencies.
Those findings were discussed in two reports Tuesday from the Federal Housing Finance Agency Office of Inspector General.
“The delay was caused by challenges associated with coordinating among Freddie Mac’s various foreclosure/deficiency collection counterparties — servicers, attorneys, and vendors,” the OIG stated. “Specifically, the vendors did not timely receive from the servicers and attorneys the information needed to calculate deficiency balances and pursue collection.”
The OIG originally issued a report in October 2012 indicating that FHFA hadn’t acted upon the opportunity to provide guidance to Fannie and Freddie about collecting deficiency balances from borrowers capable of paying them.
Collection vendors for the pair of secondary lenders have been unnecessarily limiting their pursuit of borrowers who were able to repay balances remaining after foreclosure sales.
Part of the problem is that vendors aren’t moving quickly enough before and after foreclosure to assemble documents and information needed to evaluate and pursue borrowers — which would help them beat the statute of limitations.
The OIG said that FHFA can do a better job of overseeing the effectiveness of Fannie’s and Freddie’s deficiency recovery process for borrowers who have the ability to make such repayments.
If capable borrowers are forced to payoff deficiency balances, then other capable borrowers will be deterred from strategically defaulting.
In addition, the collection of deficiency balances will reduce the amount of the bailout paid so far by the Treasury Department.
So the OIG is recommending that FHFA directs Fannie “to strengthen controls over deficiency collections by more fully considering timeframes provided by states’ statutes of limitation in prioritizing, coordinating, and monitoring collection of deficiencies from borrowers with the ability to repay.”
In Freddie’s case, the OIG is recommending that FHFA periodically evaluate Freddie’s efficiency and effectiveness; review its monitoring controls over servers, foreclosure attorneys and collection vendors; direct Freddie to establish controls for its counterparties to swiftly deliver documents to deficiency recovery vendors or face financial consequences; and direct Freddie to implement a control to consider timeframes by state
FHFA agreed with the recommendations.
