Fitch: RMBS Servicers Largely Weathered the Pandemic

Fitch Ratings, a Nationally Recognized Statistical Rating Organization with the U.S. Securities and Exchange Commission, has released a special report on a recent roundtable covering Residential Mortgage-Backed Securities (RMBS). The meeting consisted of 45 of the top key players in the RMBS servicing space who discussed perspectives on important industry trends, developments, and use of technology during the pandemic. 

During the outset of the COVID-19 outbreak and the subsequent lockdowns, Fitch changed the ratings of all RMBS services to a negative outlook due to rocketing unemployment. They cited concerns of rising delinquencies, delinquent interest, and the rising cost of servicing these loans. Since then, 32 of the 40 Fitch-rated RMBS servicers have weathered the pandemic storm and received revised outlooks of “stable” based on an analysis of operational performance and financial viability. 

At the aforementioned roundtable, servicers discussed how they applied lessons they learned from the 2008 financial crisis to the problems they faced during the pandemic. 

According to a press release from Fitch, attendees agreed that technology played a key role in the successful rollout of the Coronavirus Aid, Relief, and Economic Security Act, which offered mortgage forbearance relief to millions of borrowers averting another crisis. 

It is also important to mention that attendees agreed that their investments they made in technology paid off handsomely, allowing servicers to work from home to process forbearance applications using automated telephone systems, websites, and mobile phone portals. 

“Servicers still face significant challenges in 2022,” said Richard Koch, Director and Primary Ratings Analyst at Fitch Ratings. “The wind down of foreclosure and eviction moratoriums and the potential impact to RMBS performance remain a key focus for investors, servicers and issuers.” 

While optimistic, servicers cautioned that post-pandemic market conditions could cause a confluence of foreclosures, bankruptcies and evictions could strain third-party vendor resources, especially attorney networks, and cause a backlog of court dockets as borrower protections have largely expired. Consumer litigation such as contested foreclosures and increased regulatory scrutiny could further stress servicer resources raising costs. As noted in Fitch’s March 2020 servicer outlook, these factors could still elevate delinquencies, increase servicer advances, and stress RMBS performance.