A new cap on the total incentive fees that government-sponsored firms pay to finance housing finance firms could play a role in resolving federal forbearance plans.
The cap encourages the service technicians to commit to an forbearance exit plan they originally worked out with a borrower, thereby limiting their consideration of new options in the future.
"The total total fee a servicer can receive is $ 1,000. I think this is an incentive for the servicer to look closely at the borrower's situation and really think about what will be best in the long run," said Christopher Sicuranza, partner and head of banking, insurance and capital markets practice at Navigant Consulting.
First announced in June and updated in July, focus is now on the potential impact of the limit as the end of the first six-month coronavirus-related leniency period approaches and expanded unemployment benefits expire. The Department of Labor's latest weekly unemployment claims report shows that, while seasonally adjusted numbers have declined significantly from a high of 6.9 million in March, they have increased recently and remain above 1 million.
The number of borrowers with forbearance plans continues to decline, but the magnitude of that decline has slowed. In addition, more than half of all borrowers on forbearance plans have extended them, and a small percentage of borrowers who left the forbearance plan earlier are re-entering.
The cap could weigh on mortgage companies when the distress of the market is high.
"One impact I see when changes to these incentive fees go into effect or have an impact is how expensive they are to servicers," Sicuranza said.
On the flip side, the fee helps control GSEs' expenses if the Federal Housing Finance Agency wants to rebuild its capital before exiting conservation.
The GSE fees paid to service technicians vary based on the complexity of the training and the costs involved, so they do not necessarily encourage the use of one training over another. However, they encourage the servicer to get loans out of tolerance and get back on track quickly.
"An incentive fee really replaces nothing being paid during the entire grace period, and servicers may not be paid a fee if the borrower remains in default," said Larry Platt, partner at Mayer Brown.
Fees generally range from $ 500 to $ 1,000, with a few exceptions.
For example, one of the simplest workout options available today – a deferral where payments are counted towards the end of the loan – results in a payment of $ 500 to servicers.
At the other end of the scale, there is a change in loan terms that results in a decrease in a borrower's income. This fee is currently capped at $ 1,000.
Servicers received payments for these changes based on how criminal the borrowers were and whether those borrowers had successfully made payments during a trial period.
For example, the maximum payment was $ 1,600 for arrears longer than 120 days. It's now a flat fee regardless of the default status of a loan.
The structure of these fees is likely to change again before the pandemic ends, Paul Anselmo, CEO of industrial technology provider Evolve Mortgage Services, said in an email.
"The GSEs' incentive programs have evolved with the financial crisis and are likely to continue to do so," he said. "In fact, the details of the incentive programs have changed at least four times since they were first announced in March. At that time we did not understand the extent of the crisis. We still do not know what the future holds as the long-term effects are still unfolding . "