“While Fitch expects loss severities to decrease and timelines to shorten, we do not expect a rise in ratings on RMBS as these changes are already reflected in our analysis,” add Fitch.
The analysis says that as of earlier this year, timelines topped out at four years and have begun to decline with the inventory of severely delinquent loans now at the lowest level seen since 2007.
Fitch says that median timelines have historically been just below the average, but the report indicates that the widening average-median gap represents a long tail of long-timeline loans that continue to elevate the average while the bulk of the timeline distribution has begun to shift lower.
“After 10 years of steady increases, liquidation timelines on defaulted RMBS loans have begun to fall as mortgage servicers continue to make progress on their backlog of severely distressed properties,” says Sean Nelson, Senior Director, U.S. RMBS, Fitch Ratings. “Fitch expects loss severities to follow suit, since shorter timelines result in lower costs and higher property sale proceeds.”
The report notes that even though the national average timeline has dropped slightly from its peak, this trend varies on the state side. Timelines in states that require judicial foreclosures remain well above the national level says Fitch. In contrast, the report indicates that non-judicial states have outperformed the national average.
“Distressed RMBS loan inventory is down over 75 percent nationally from the peak in 2010, but progress has varied by state,” says Nelson. “California and Florida have vastly outperformed New York and New Jersey in resolving their distressed loans. At the peak, California and Florida combined for over 5 times more distressed loans than New York and New Jersey. Today, the two are roughly equal as New York and New Jersey continue to struggle to make a dent in their distressed inventory.”