Countrywide Picks Up Pace Resolving Troubled Loans: Barclays

Liquidation and modification rates on Countrywide-serviced residential loans have edged higher in the past few months, with a larger percentage of mortgage restructurings encompassing principal forgiveness, according to a study just released by ""Barclays Capital"":http://www.barcap.com.

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The research firm examined loans within residential mortgage-backed securities (RMBS) serviced by Countrywide, now ""Bank of America Home Loans"":https://www8.bankofamerica.com/home-loans/overview.go, and found that while historically, Countrywide-serviced deals have claimed lower-than-average mod rates and long liquidation timelines, that has begun to turn around in the past few months.

Barclays reports that constant default rates (CDRs) on pools of mortgages serviced by the once-subprime leader have improved, primarily due to faster roll rates, as well as rejections from Home Affordable Modification Program (HAMP) trials, which allow the loan to proceed to foreclosure. Analysts at Barclays expect Countrywide's liquidation rates to continue to increase as more HAMP trials are resolved in the coming months.

Many of these resolutions, though, do include transitions to permanent loan restructurings. Barclays says HAMP conversions have also boosted modification rates for Countrywide, and the research firm found that debt forgiveness mods now make up 10 percent of the servicer's modified loans, up from 0 percent in January.

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According to Barclays, Countrywide's most recent mods have been on loans that are more than 10 months delinquent as the company continues to sift through a backlog of past dues.

As recently as the end of January, commentary by Barclays' analysts was considerably less favorable toward Countrywide's servicing practices.

""In that piece, we discussed several issues with Countrywide-serviced deals â€" including abysmally low liquidation rates, modification rates that were well below sector averages, and long liquidation timelines. Much has transpired…in the three months since then, Barclays wrote in its study released this week.

The research firm says it as seen ""continuous improvement"" in current to delinquent rolls and falling 60-plus day delinquencies. In addition, Countrywide/Bank of America announced a new program in March focusing on debt forgiveness mods, that was closely followed by similar changes to the HAMP waterfall. Even more significantly, Barclays says there have been important changes in servicer behavior in the Countrywide camp.

This last point is important, according to Barclays, because Countrywide constitutes 15 to 20 percent of the outstanding universe in subprime/option adjustable-rate mortgages (ARMs), and has the potential to drive sector level performance.

Since January, Barclays notes that the number of loans flowing from 90-day delinquency to foreclosure, and from REO to liquidation, has increased dramatically.

HAMP rejection rates for Countrywide loans have shot up in the past few months and now constitute 36 percent of all resolved trial mods. At the same time, though, the servicer's HAMP modification rate has doubled since December, with permanent restructurings, in particular, increasing sharply over the last couple of months.

According to the Treasury's latest HAMP progress report, Countrywide/Bank of America is servicing approximately 215,000 active trial mods and has finalized nearly 57,000 permanent loan restructurings.