Freddie Mac today told mortgage servicers it was doubling the amount of money it pays for each workout that keeps a delinquent borrower with a Freddie Mac-owned mortgage out of foreclosure.

Freddie Mac also announced it will start reimbursing servicers for the cost of door-to-door outreach programs, give servicers more time to negotiate workouts in states with fast foreclosure processes, and make administrative changes intended to streamline the workout process.

"We are taking these steps because we want to reinforce the tremendous importance of workouts and reward their use," said Freddie Mac Vice President of Servicing and Asset Management Ingrid Beckles. "Giving our servicers more time and greater compensation to help troubled borrowers is fundamental to preserving homeownership and maximizing our efforts to minimize foreclosures."

According to Beckles, starting August 1, 2008, compensation for repayment plans will rise from $250 to $500 while loan modification compensation will increase from $400 to $800. For short sales or pre-foreclosure sales, where Freddie Mac agrees to accept less than the full amount owed on a borrower's loan, compensation will go from $1,100 to $2,200. (The higher amount recognizes the greater servicer staff time involved when negotiating property sales.)

Freddie Mac also said it will now reimburse the cost of leaving a door hanger up to $15 per mortgage and up to $50 per mortgage for a door knocking that results in the borrower contacting their servicer. Freddie Mac will also reimburse servicers up to $200 for additional fees paid to vendors for door knocking that results in successful alternatives to foreclosure. This policy is effective from August 1, 2008, through March 31, 2009.

To qualify for the reimbursement, the servicer must show that the mortgage was at least 90 days delinquent, the servicer had no prior contact with the borrower, and that the outreach was done by an independent third party vendor.

Freddie Mac also announced it is extending the time for foreclosures so servicers will have more time, if needed, to negotiate workouts with delinquent borrowers in Washington, DC, and 20 states with relatively fast foreclosure processes.

In addition to Washington, DC, the affected states include Alabama, Alaska, Arizona, Arkansas, California, Georgia, Hawaii, Maryland, Michigan, Minnesota, Mississippi, Missouri, New Hampshire, North Carolina, Rhode Island, Tennessee, Texas, Virginia, West Virginia and Wyoming.

Specifically, starting August 1, 2008, servicers are allowed up to 300 days (10 months) from the due date of the last payment to the foreclosure sale in these states to seek aggressive and sustainable workout solutions for the borrowers and still meet the standards set in Freddie Mac's Servicer Performance Profiles. The company uses the Servicer Performance Profiles to measure and reward the quality of a servicers' investor reporting and default management.

Even though the laws in these states permit a lender to foreclose in less than 300 days, this announcement means Freddie Mac will permit its servicers more time to complete foreclosures. The new policy won't affect borrowers in states where the foreclosure process already exceeds 300 days.