Work With Delinquent Borrowers

Credit unions should set firm standards for themselves on how they work with delinquent borrowers, and then abide by them.


Credit unions can take justifiable pride in the success of their lending programs. The 90-day delinquency rate on all loans reported by commercial banks in 2010 was nearly three times higher than the 60-day delinquency rate on credit union loans.

Yet as high levels of mortgage loan delinquencies and foreclosures persist, servicers can benefit from a delinquency management standard that helps them work most effectively with struggling borrowers through a streamlined process. With that goal in mind, Fannie Mae and Freddie Mac, under the directive of the U.S. Federal Housing Finance Agency, have implemented the Servicing Alignment Initiative (SAI) to simplify the servicing processes.

SAI is a directive requiring servicers of Fannie Mae and Freddie Mac loans to align their loan servicing and delinquency management practices to a uniform set of performance criteria. The goals of SAI include:

  • Improved service to borrowers as well as greater consistency and clarity in borrower communications
  • More efficient processing of loan modifications
  • Consistency, fairness, and efficiency in the foreclosure process
  • Increased servicer accountability, reinforced by new incentives and compensatory fees

The new standards affect mortgage loans that either become delinquent or are determined to be in imminent default on or after October 1, 2011. Credit unions sold 44.5% of their mortgages to the secondary market year-to-date as of the second quarter 2011, and therefore service on those loans would follow this new standardized process, according to Callahan and Associates’ Peer-to-Peer data.

What does SAI mean for servicers?

SAI sets standards in four areas: borrower contact, delinquency management practices, loan modifications and foreclosure alternatives, and foreclosure timelines.

More specifically, the new standards require servicers to reach struggling borrowers earlier in delinquency – as early as the third day following a missed payment – and more frequently, with consistent written and other communications. Such contact will help the servicer understand the borrower’s circumstances.

Servicers will use consistent written communications to inform borrowers about foreclosure prevention options. The GSEs provide identical borrower information packages to collect information and specify what documentation the borrower may need to provide.

Servicers will evaluate borrowers simultaneously for the Home Affordable Modification Program, Home Affordable Foreclosure Alternatives, and other options. Again, consistency is important. Servicers will use consistent evaluation standards, trial periods, and modification terms in assessing borrowers for modifications.

While working to keep people in their homes whenever possible, servicers must move borrowers more quickly to a resolution. When foreclosure is unavoidable, servicers must adhere to uniform processing timelines.

Select servicers receive incentive payments for achieving quality benchmarks and can be assessed compensatory fees for timeline violations.

How does SAI benefit both servicers and borrowers?

While SAI means changes for servicers, the initiative will increase transparency and accountability for both servicers and borrowers. SAI requirements will help borrowers understand their options and help servicers efficiently evaluate borrowers’ eligibility for a loan modification or other workout alternatives.

Fannie Mae provides additional guidance on the updated servicing requirements at This guidance includes the delinquency management and default prevention timelines and processes required by Servicing Guide Announcement SVC-2011-08R, as well as sample borrower communications materials and training aids.



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