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Home | News | Loss Mitigation | Rise in Prices, Use of Short Sales Lead to Declining Loss Severities
Hudson & Marshall
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Rise in Prices, Use of Short Sales Lead to Declining Loss Severities

Rise in Prices, Use of Short Sales Lead to Declining Loss Severities

Rising home prices and higher levels of short sales are leading to declining loss severities in the residential mortgage-backed securities (RMBS) market, according to ""Fitch Ratings."":http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp The agency's quarterly report noted its Loss Severity Index declined from 67.5 percent in the first quarter of 2012 to 64.2 percent in the first quarter of this year.

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Loss severities on short sales tend to be 10 to 15 percent lower than loss severities on REOs, according to Fitch. Also, short sales are generally resolved about 12 months sooner than REOs, the agency stated.

""Along with home price improvements, the increased use of short sale liquidations is now helping to reverse the trend of rising mortgage loss severities,"" said Sean Nelson, director at Fitch Ratings.

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Short sales actually declined slightly in the first quarter of this year, but they still outpace other liquidation strategies for nonperforming loans, according to Fitch.

The decline in short sales and changes in the regulatory environment led to increased liquidation timelines in the first quarter.

Completed foreclosures plummeted in the first quarter amid the regulatory changes and landed near historical lows, according to Fitch.

However, the market did experience improvement in delinquencies over the quarter with 60+ day delinquencies declining from 28.7 percent to 27.9 percent and the delinquency roll rate declining from 2.6 percent to 2.4 percent.

Delinquency improvements can be attributed to ""positive selection among remaining borrowers, improved re-default rates of modified loans and positive home trends,"" according to Fitch.

Delinquencies for loans issued since 2005 will likely continue their current decline, according to Fitch.

Rising home prices, which also played a role in declining loss severities in the first quarter, may not persist, according to Fitch.

The agency suggests ""home prices remain slightly above sustainable levels are at risk for further declines."" A particular area of concern is the Northeast.

Hudson & Marshall

About

Krista Franks Brock
Krista Franks Brock is a regular contributor to DSNews.com and TheMReport.com. She previously served as managing editor of DS News magazine. Prior to joining DS News, she was managing editor of Southern Distinction, a regional lifestyle magazine based in Athens, Georgia. She is currently a freelance writer and editor for various online and print publications. She holds degrees in journalism and art from the University of Georgia, where she also earned a minor in Spanish.

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