Moody’s: Foreclosure Timelines on the Rise; More Losses to RMBS

Foreclosure timelines are on the rise, and the increase is resulting in greater losses to residential mortgage backed securities (RMBS), according to Moody's Investor Service's Servicer Dashboard for the fourth quarter 2011, released Thursday.

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The average loan in foreclosure has been in the process for 571 days, but judicial states are weighing heavily on that average.

Foreclosures in judicial states have aged an average 654 days, while foreclosures in non-judicial states have aged an average 297 days, according to Moody's.

The two-year timelines in judicial states are leading to a higher average age of loans in foreclosure. Ultimately, this translates to increased losses for RMBS.

""Because loans that have yet to complete foreclosure are already much older than those that have already completed the process, they will incur greater costs, which

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will lead to higher loss severities to the RMBS trusts upon liquidation,"" Moody's stated in its report.

Of the six banks Moody's observes, Citi is experiencing the lowest rate of aging in both judicial and non-judicial states, 561 days and 230 days, respectively.

GMAC loans are aging the most in judicial states 691 days, while Chase records the highest average aging in non-judicial states, 409 days.

However, Chase has experienced the greatest discrepancy between timelines of completed foreclosures and current foreclosure inventory with completed foreclosures averaging 264 days and current foreclosure inventory averaging 604 days.

As a result, Moody's predicts Chase ""may see the greatest impact to loss severities relative to the loans it has already liquidates.""

Additionally, as aged foreclosures are processed, Moody's expects the timeline of foreclosure referral to foreclosure sale to increase.

GMAC holds the longest foreclosure timelines for Alt-A and subprime loans, and Bank of America holds the longest timeline for jumbo loans.

Total cure and cash flowing rates declined at GMAC, Citi, and Wells Fargo over the fourth quarter for all loan types.

Ocwen also experienced a decline from a 44.1 percent total cure and cash flowing rate for its subprime loans to a 33 percent rate in the fourth quarter.

However, Ocwen attributes this to its acquisition of Litton Loan Servicing.