U.S. Residential Mortgage Backed Security (RMBS) servicers are better equipped and better prepared for another financial crisis, according to Fitch Ratings. Fitch’s latest U.S. RMBS Servicer Handbook indicates that servicers are now better positioned than they were before the financial crisis, due to new technology and improved regulatory compliance over the past 10 years.
“Improved systems allow servicers to respond more quickly to unexpected events, as evident by strong delinquency recoveries after recent natural disasters,” said Roelof Slump, Managing Director at Fitch Ratings. Natural disasters may be one of the biggest threats to the economy, despite strong recoveries in recent months.
According to a recent report by CoreLogic, in Hurricane Harvey's federally declared disaster areas, 80 percent of the homes lacked flood insurance. The report also revealed a jump in serious mortgage delinquencies on damaged homes within the area to more than 200 percent. As serious disasters continue to occur in areas once considered unthreatened by the phenomenon, the potential of a foreclosure crisis in unprepared, unsuspecting areas looms large over the nation’s mortgage industry.
In the meantime, according to Fitch, the recent efficiency gains, combined with improving mortgage performance, have resulted in a decline in average servicer employment of 71 percent for banks and 33 percent for nonbanks over the past five years.
Fitch notes that new technology has made mortgage servicing less concentrated across the industry, allowing servicers to transfer loans more easily and effectively. According to Fitch, this may be a mitigant to servicer disruption in a downturn, as loans in a distressed servicer’s portfolio may be transferred or consolidated more easily. Additionally, the Handbook found that the ten largest servicers by UPB balance control approximately 80 percent of overall servicing UPB as of third-quarter 2018, which is down from 93 percent five years ago.
Fitch’s quarterly U.S. RMBS Servicer Handbook includes data and descriptions for all Fitch-related servicers, and incorporates quarterly updates from each servicer. Each quarter, the Handbook is updated to include up-to-date rating changes, any changes to key rating drivers, and portfolio size and attribute data. Find the complete Fitch Ratings U.S. RMBS Servicer Handbook here.