Freddie Outsources Modification Duties to Ocwen.

Byline: Kate Berry, American Banker

Washington-Freddie Mac's decision to hire specialist firms such as Ocwen Financial Corp. to work out seriously delinquent mortgages is another sign that servicers are being overwhelmed by the volume of defaults.

The government-sponsored enterprise said that it will turn over to Ocwen roughly 5,000 low-documentation loans that are at least 60 days delinquent. Freddie said these alternative-A loans represent a fraction of its total single-family loan portfolio but accounted for half of its seriously delinquent mortgages.

"What this says is they have default servicing capacity constraints, and this is one of the ways they're trying to alleviate it," said Kevin Kanouff, a founder of Statebridge Co., a servicing startup in Denver.

For more than a year, such constraints have received much of the blame for the sluggish pace of modifications. Some borrowers have told members of Congress that they made several attempts to contact their servicer but were unable to get through even after hours of waiting on the phone, and ultimately were pushed into foreclosure without ever having contact with their servicer.

Last year Freddie doubled the compensation to servicers that made loan modifications to $800 per loan. Hence, Ocwen stands to collect millions in fees that might otherwise have gone to the companies that have been servicing the alt-A loans. Freddie said the program could be expanded to include more loans and other special servicers.

A spokesman for Freddie Mac would not say whether the loans in the program were being transferred to Ocwen with the consent of the existing servicers. Ocwen did not return calls for this story.