Fannie Mae Specialists Work To Save Troubled Loans

To understand why it's so hard to come up with a national loan modification plan to help millions of homeowners, look no further than Fannie Mae's operations in Dallas.

The company's specialists there handle hundreds of thousands of troubled home loans and decide, essentially, who gets a loan workout and who doesn't.

Fannie Mae employs hundreds of people who specialize in everything relating to loans: How to evaluate the health of them, how to educate their vendors on how to handle them, how to renovate and sell foreclosed properties and even how to rent homes in the process of foreclosing.

In short, the operation here is a hub for shepherding one of the biggest caseloads of home loans. The economic crisis has put an estimated 10 million homes in danger of foreclosure.

"If you're an asset manager, you're in the World Series here in terms of managing through this credit crisis," says Kevin Brungardt, vice president of Fannie Mae's servicing organization.

Overseeing A Third Of U.S. Home Loans

Fannie Mae owns or guarantees about a third of the nation's home loans --18.3 million loans valued at $2.7 trillion — according to recent data from the Federal Housing Finance Agency.

Although only 2.4 percent of those loans are in serious delinquency — a relatively low number compared with many other lenders — that still means it has to go through more than 440,000 loans and figure out which borrowers should keep their homes and which are beyond help.

Government Takeover

Fannie Mae's financial troubles last year prompted the government to take it and sibling company Freddie Mac under conservatorship. Since then, analysts say the Obama administration is pushing Fannie Mae to more aggressively modify loans — even if it means doing so at a loss for the company.

"They have to avoid foreclosure at all cost, and try to work out something even if it ends up costing them more money, workload, everything else down the road," says Guy Cecala, publisher of a trade magazine called Inside Mortgage Finance. "Lenders are also under the same political pressure, if you will, but Fannie Mae doesn't have any alternative to say 'no.' "

That new, more aggressive policy may help many more homeowners, but Cecala said it could also come with downsides. Namely, overly aggressive modifications could keep homeowners in mortgages where they will eventually re-default on their payments.

Relying On Servicers

Fannie Mae itself doesn't review every individual loan. Instead, Fannie Mae relies on so-called loan servicers to handle interactions with borrowers.

In nearby Lewisville, Texas, one such loan servicer, Nationstar Mortgage, handles some of Fannie Mae's most troubled loans.

During better economic times, when few homeowners are delinquent on their payments, Nationstar's job can be relatively straightforward, says Bob Appel, executive vice president at the company.

"Most borrowers make their payments every month, so it's more of an accounting" job, including sending out the bills, collecting payments and posting them to the account, Appel says.

But when they hit on bad times, troubled borrowers often ignore calls and mail. To get their attention, Appel says they sometimes send DVDs to borrowers. Some mortgage servicers even send cell phones in express packages, enticing the borrower to dial the number on the phone.

Rising Delinquencies

Managing each of the delinquent accounts is terribly time-consuming and requires lots of manpower.

At Nationstar, much of that legwork is done by hundreds of employees like Carlos Salas. Salas works with borrowers seeking to modify their loans. To do so, he asks for updated information about a borrower's financial condition, employment, salary. He then plugs that into a software program that helps the company evaluate whether borrowers can qualify for a lower interest rate, or some other means of reducing their monthly payments.

Part of the job requires being somewhat empathetic with customers, but at the end of the day there is one purpose: trying to maximize the return for Fannie Mae.

In some cases, Nationstar can't resolve a loan, and then it ends up in the hands of a Fannie Mae servicing specialist like Michelle Barton. She reviews each case to see whether additional tinkering with the numbers might make the loan affordable for the homeowner.

"We're trying to do more things, come up with more programs, so that we don't have to say 'no,' unless it's just absolutely impossible to do a workout," Barton says.

Growing Workload

With delinquencies on home loans increasing, the demands on Fannie Mae and its loan servicers are likely to keep increasing.

"As fast as we add staff to support, more and more homeowners are having issues and need and more and more help," says Pam Anderson, director of servicing management for Fannie Mae. She says servicing companies are getting increasingly backlogged with work.

But Anderson says people also care about her work more, and that makes her job more exciting. "It's changed so significantly," she says, "now that mortgage servicing is much more in the spotlight."

In the second part of this series, Yuki Noguchi looks at what happens after Fannie Mae forecloses on the many properties that fall into its hands.

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