By Jessica Bollman

Fannie Mae and Freddie Mac have been directed to work together along with the Federal Housing Finance Agency (FHFA) and the Department of Housing and Urban Development (HUD) to develop an alternative plan for future mortgage servicing structures and ensuring mortgage servicers are being compensated for their single-family mortgage loans.

Image by Greg Vote/Corbis

“The current servicing compensation model was not designed for current market conditions,” says FHFA Acting Director Edward J. DeMarco. “The goal of this joint initiative is to explore alternative models for single-family mortgage servicing compensation that better address the needs of borrowers, servicers, originators, investors and guarantors.”

As of today servicers are compensated based on a minimum fee that is part of the mortgage rate and currently this “decreases the flexibility necessary for optimal servicing on non-performing loans from both the borrowers’ and guarantors’ perspectives,” FHFA said in a Tuesday press release.

The main problem is that servicers are not getting paid when the homeowner falls behind on their payments and therefore servicers are less likely to modify their loan. It is easier for the servicers to cut their losses when their fee isn’t paid and in turn the homes are going into foreclosure. There isn’t much incentive for mortgage servicing companies to modify loans.

According to the FHFA, “the goals are to improve service for borrowers, reduce financial risk to servicers, and provide flexibility for guarantors to better manage non-performing loans, while promoting continued liquidity in the To Be Announced mortgage securities market.”

The FHFA will seek feedback from the industry over the next several months – but don’t get too excited just yet – it isn’t likely that any of these changes will be made before the summer of 2012.