The Federal Housing Finance Agency (FHFA) has directed Fannie Mae and Freddie Mac to work on a joint initiative, in coordination with FHFA and the Department of Housing and Urban Development (HUD), to consider alternatives for future mortgage servicing structures and servicing compensation for their single-family mortgage loans. Currently, a servicer’s compensation is generally based on a minimum servicing fee that is part of the mortgage rate, which decreases the flexibility necessary for optimal servicing of nonperforming loans from both the borrowers’ and guarantors’ perspectives. The FHFA says the current servicing compensation structure also results in the creation of a mortgage servicing right asset, which is difficult to manage and separate from a servicer’s core competency of servicing mortgage loans. The joint initiative will consider alternatives to the traditional servicing compensation structure with the goals of improving service for borrowers, reducing financial risk to servicers, and providing flexibility for guarantors to better manage non-performing loans.