As many know, Fannie Mae is a complete and utter failure. The creators of Fannie Mae, Freddie Mac and Ginnie Mae, may have had the best intentions, but we all know the saying about having the best intentions. Simply put Fannie Mae was set up to help income based families receive loans to by homes. A lot of greed and incompetence has put Fannie Mae in the position that it is in today. Simply put Fannie Mae purchases mortgages and pays servicers to collect the money due on the mortgage. Many homeowners may believe that Bank of America owns the mortgage on their home, but the reality is that Bank of American may only be a servicer for Fannie Mae. Fannie Mae may use other servicers such as Select Loan Portfolio, Ocwen, etc. to send you your monthly statements, collect money and yes foreclose if you default. Fannie Mae has a contract with most of their servicers that basically state that if Fannie Mae terminates its servicers that Fannie Mae will pay a “break up” fee. Fannie Mae servicers have the highest default rate of any other Mortgage holder. The servicers receive additional incentives and fees every time the loan is in default. If the loan is paid late by the homeowner, if the homeowner calls in to make a payment instead of mailing in the check….all of these fees go straight to the servicers. In other words, servicers receive a benefit when the homeowner is late or has defaulted. Fannie Mae does not receive an incentive or benefit when the homeowner is late or has defaulted. Fannie Mae decided to pay the breakup fee to fire their present servicers and hire new servicers; however Fannie Mae is paying 2.3 times the amount of the breakup fee or approximately 1.5 billion. Fannie Mae reasons that it would lose an additional 10 billion dollars over the next five years if they did not pay the additional fee to immediately fire their servicers. I have never understood the math logic of Fannie Mae; however I think a better idea would be to sue the servicers for breach of fiduciary duty and gross negligence and then provide automatic modifications directly to the homeowners which reduced the arrearage and or principal….not just put it on the bank end of the loan.