* Fannie Mae steps up servicing transfers-sources
* Freddie Mac also considering further moves
* Big banks could lose servicing income
* Homeowners may end up better off
By Al Yoon
NEW YORK, Oct 25 (Reuters) - U.S. mortgage finance giants
Fannie Mae and Freddie Mac are looking to more aggressively
move loan workout duties to specialist firms as their
frustrations with the big banks deepen, sources said.
Widespread criticism -- and federal and state
investigations -- of big banks' use of inaccurate paperwork
when foreclosing and their reluctance to ease payments for
borrowers has created an opportunity for smaller companies to
take on more of the lucrative business. Ten firms handled 80
percent of Fannie Mae's loans, of which 27 percent were in the
hands of Bank of America, as of June.
The trend may result in big banks losing revenue as the now
four-year mortgage crisis wears on, but it may help homeowners
and save taxpayers money. Homeowners may end up with better
care as they wind their way through the foreclosure process and
taxpayers -- who support Fannie Mae and Freddie Mac -- may end
up shouldering fewer losses from bad mortgages.
Banks including Wells Fargo & Co and Bank of America Corp
collect payments on millions of mortgages and work out bad
loans. The service of collecting monthly payments is typically
paid out of the interest rate charged on the loans guaranteed
by Fannie Mae and Freddie Mac.
"There's a ton of servicing transfers going on. Some very
big ones," said Sue Allon, chief executive officer of
Allonhill, a Denver, Colorado-based mortgage risk management
firm that has been involved in some of those deals.
Fannie Mae this month reassigned servicing on some 200,000
loans, placing a large chunk with Nationstar Mortgage, a unit
of Fortress Investment Group, two sources said. It is a
relatively small portion of Fannie Mae's portfolio, but it may
also be the tip of the iceberg.
A Nationstar spokesman did not respond to requests for
comment. A spokeswoman for Fannie Mae declined to comment on
servicing transfers and the original servicer of the loans was
Freddie Mac, which has hired Ocwen Financial Corp
in the past, is considering greater use of so-called special
servicers that were set up to deal with delinquent borrowers,
versus the high-volume business of simply collecting and
distributing payments, Anthony Renzi, executive vice president
of single-family portfolio management, said through a Freddie
In addition to Nationstar, other firms "making a big play"
to take on work from Fannie Mae and Freddie Mac, include Ocwen
and Wilshire Credit Corp., a former Merrill Lynch & Co.
servicer sold to IBM by Bank of America in March, said Steve
Horne, president of Wingspan Portfolio Advisors, a Carrollton,
Investors have also complained of variations of servicers'
policies that can make significant differences to a loan's
market value or proceeds when the bank repossesses the home.
Nearly 3 million homes have gone into foreclosure since January
2007. The volume has put servicers under pressure to process
the foreclosures at a rapid rate and led to allegations that
"robo-signers" were certifying documents they had not
Beyond bad paperwork, many servicers have failed to take
enough steps that could help limit losses for whoever owns the
mortgages, such as modifying loan terms.
"What it's bringing attention to is, these mega-servicers
are so inundated, that they can't get to the ones that need
attention," said John Beggins, chief executive officer of
Specialized Loan Servicing, in Littleton, Colorado, which is
hired by investors to improve the value of defaulted loans, and
has taken on some Fannie Mae and Freddie Mac business.
"How many people are slipping into foreclosure that could
have been modified?" said Beggins, adding that "I do hear a lot
of activity out there."
This failure has been a major thorn in the side of Fannie
Mae and Freddie Mac, which are trying to minimize losses on the
more than $5 trillion of loans and mortgage bonds that they
have guaranteed and invested in.
Fannie Mae told servicers in August that it would seek
damages if they took too long to foreclose on homes, or didn't
take proper action that would help cut losses. The company also
outlined allowable timeframes for foreclosures in some states.
"Fannie can and will remove servicing because, at this
point, the servicers are costing them money," said Paul Norris,
head of structured bonds at Burlington, Vermont-based Dwight
Asset Management, and a former Fannie Mae portfolio manager.
It makes sense for Fannie Mae and Freddie Mac to spread
around their business to limit their risk, industry experts
But the big servicers, who are also the largest home
mortgage originators, will most likely retain most of their
market share, however, said Paul Miller, an analyst at FBR
Capital Markets in Arlington, Virginia.
(Editing by Jackie Frank)
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