Fannie Mae and Freddie Mac will soon begin collecting punitive compensation from mortgage servicing companies that deal with troubled mortgages too slowly, their regulator said on Wednesday.

"The enterprises will be moving forward with servicer penalties for last year in the coming weeks," Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), told a conference of mortgage servicers in Dallas. A copy of his remarks was posted on the FHFA website.

The penalties are designed to prod mortgage servicing companies, which collect payments from borrowers and negotiate new terms for troubled loans, to resolve delinquent loans more quickly.

Fannie Mae and Freddie Mac have seen their costs rise, and losses mount, as borrowers on mortgages they guarantee have fallen further and further behind on payments. If servicers moved more quickly to modify loans or foreclose on delinquent borrowers, it could help the two firms to minimize losses.

DeMarco also said his agency is working with the two mortgage finance firms to standardize the way they encourage servicers to work with borrowers, using both a carrot and a stick.

"The new set of requirements, timelines, incentives and penalties" for mortgage servicers are to be announced by the end of March, DeMarco said.

The new incentive structure "will reward servicers for early engagement (with borrowers) … and will include consideration of appropriate penalties to encourage efficient resolution and liquidation of properties in cases where foreclosure is necessary," DeMarco said.
The upcoming round of fines is expected to be in the millions of dollars, though neither Fannie Mae nor Freddie Mac would comment on specific dollar amounts they expect to collect.

The two firms have taken more than $130 billion in direct taxpayer aid, and the Obama administration expects the losses could peak at $169 billion before slowly shrinking. FHFA estimates cumulative taxpayer aid could go as high as $259 billion. (Reuters)