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Fitch Spotlights RMBS Delinquency Trends, Borrower Assistance Impacts

Mortgage servicers nationwide continue to work with struggling homeowners to avoid loan default, as early delinquencies remain flat and late stage delinquencies show positive movement, according to Fitch Ratings’ 1Q23 U.S. RMBS Servicer Metric Report.

“While loan portfolio delinquencies for Fitch-rated bank and non-bank servicers were flat or modestly improved for the fifth consecutive quarter, the impact of borrower assistance programs and successful workout strategies is holding new foreclosure filings to a minimum,” said Fitch Ratings Director Richard Koch.

Fitch’s U.S. RMBS Servicer Metric Report is published quarterly with the most recent four quarters of servicer performance data included, providing transparency into servicing industry trends in the bank and non-bank sectors.

Bank servicers reported an increase in loan modification requests as a percentage of all loss mitigation volume, quarter-over-quarter to 31% from 25%, while that volume was down to 13% from 17% for non-bank servicers. Active forbearance plans for bank servicers increased quarter-over-quarter to 36% from 11.5% as a percentage of loss mitigation volume, indicating an influx of applications from borrowers that had not previously exhausted forbearance. Non-bank servicers reported a decrease in forbearance plans to 35% from 47%, quarter-over-quarter.

The Mortgage Bankers Association’s (MBA) monthly Loan Monitoring Survey for July 2023 revealed that the total number of loans now in forbearance dropped by five basis points from 0.44% of servicers’ portfolio volume in the prior month to 0.39% as of July 31, 2023. According to MBA’s estimate, 195,000 U.S. homeowners are currently in forbearance plans, and since March 2020, mortgage servicers have provided forbearance to approximately 7.9 million borrowers nationwide.

“The prevalence of forbearance plans has dramatically dropped since 2020, and the reasons that borrowers are in forbearance are changing,” said Marina Walsh, CMB, MBA’s VP of Industry Analysis. “About two-thirds of borrowers are still in forbearance because of the effects of COVID-19, but a growing share of borrowers are in forbearance for other reasons that cause temporary hardship such as financial distress or natural disasters. With the COVID-19 national emergency lifted, Fannie Mae and Freddie Mac recently announced the retirement of certain COVID-19 flexibilities relating to forbearance plans and workouts.”

Fitch reported that bankruptcy caseloads showed no significant change quarter-over-quarter for bank and non-bank servicers, while foreclosure volume increased by 1% for bank servicers, and decreased 1% for non-bank servicers. Bank and non-bank servicers both showed a decrease of 1% in their reported 90-plus day delinquencies.

Real estate-owned (REO) inventory trends during the last five quarters reflected a continuing decrease in highly aged inventory (greater than 360 days), as mortgage servicers continue to work through their post-pandemic REO inventory. However, servicers reported a steady increase in new REO properties in all buckets prior to the 360-plus day category, reflecting a steady resumption of active foreclosure filings that commenced in the fourth quarter of 2022.

Additional findings in the Q1 2023 U.S. RMBS Servicer Metric Report include:

  • Bank servicers reported a substantial decrease in full-time employees from the previous quarter of 17%.
  • Non-bank servicers downsized again about 6% on average from the previous quarter.

Earlier this month, Fitch Ratings downgraded Fannie Mae's and Freddie Mac's Long-Term Issuer Default Ratings (IDR) and senior unsecured debt ratings to 'AA+' from 'AAA' and downgraded their respective Government Support Ratings (GSR) to 'aa+' from 'aaa'. The downgrade by Fitch ’s was precipitated because the ratings for the GSEs are linked to the sovereign rating of the U.S., which the firm downgraded on Tuesday. Fitch Ratings said that both Fannie Mae and Freddie Mac as GSEs benefit from implicit government support, thereby warranting the downgrade.

“The downgrade of Fannie Mae's and Freddie Mac's Long-Term IDRs and GSRs is consistent with the recent action taken on the U.S. and is not being driven by fundamental credit, capital or liquidity deterioration at the firms,” noted Fitch Ratings in an announcement. “The firms continue to benefit from meaningful financial support from the U.S. government. Key rating drivers for aligning Fannie Mae's and Freddie Mac's ratings to the U.S. rating include their mission critical function to the U.S. housing finance system and the U.S. Treasury's Senior Preferred Stock Purchase Agreements (SPSPAs). Fitch believes Fannie Mae continues to execute on its mission to provide liquidity, stability, and affordability to the housing finance industry, supporting rating equalization with the sovereign.”

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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