WASHINGTON -(Dow Jones)- U.S. Treasury Secretary Timothy Geithner and U.S. Housing and Urban Development Secretary Shaun Donovan said Tuesday they support an effort to create new compensation for mortgage servicers, calling the current system "broken."
Those companies, which collect mortgage payments and distribute them to investors, have been battered by paperwork errors and widespread consumer complaints.
As a result, the Federal Housing Finance Agency said it directed Fannie Mae (FNMA) and Freddie Mac (FMCC) to work on an initiative to develop the payment system with the Department of Housing and Urban Development. FHFA controls the two giant mortgage buyers, which have been operating in federal conservatorship since September 2008.
Compensation for mortgage servicers is currently based on a minimum servicing fee that is deducted from a borrower's interest payments. Consumer advocates and government officials said mortgage servicers don't have enough incentive to modify loans for troubled homeowners, which has led to poor results from loan-modification programs.
"It is clear that the mortgage-servicing compensation model is broken and should be fixed," Geithner and Donovan wrote in a letter to Edward DeMarco, acting director of FHFA. "Addressing this issue will help better protect homeowners, investors and taxpayers, while also increasing efficiency and competition in the market."
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