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Subprime Servicers Improve Cash Flow in Q2: Report

Overall, major subprime servicers improved their ability to limit losses on delinquent loans in the second quarter, according to the Servicer Dashboard report from ""Moody's Investors Service"":http://www.moodys.com/.


Moody's uses a cash flow efficiency metric to measure how much cash a servicer receives by looking at the amount a servicer collects on modified and liquidated loans as a proportion of losses from principal on modified loans and liquidations. A higher metric indicates more cash flow from delinquent loans.

The report revealed that the cash flow efficiency metric increased for subprime servicers, rising from 0.27 in Q1 to 0.29 in Q2, the highest level obtained over the past five quarters.

Moody's attributed the improvements to an increase in liquidation and modification volumes.

Cash flow efficiency increased for most servicers, with Ocwen and GMAC Mortgage improving the most. Ocwen's efficiency metric rose to 0.37 in Q2, up from 0.33 while GMAC went from 0.35 to 0.39. Aurora and Chase were the only servicers whose efficiency decreased.

The report also noted that Bank of America saw improved performance by completing a large number of short sales. However, the bank was still at the bottom, with its cash flow efficiency metric at 0.24.

As for the current-to-worse roll rate, which assesses a servicer's ability to keep current loans from becoming seriously delinquent, progress was made in the second quarter, with Chase and Ocwen improving the most in the subprime category and Chase leading in the Alt-A category.

Most servicers did not improve their total cure and cash flowing rate, which gauges servicers' ability to cure distressed loans. Three servicers did see improvement in certain categories: Chase (for all product types), BofA (Jumbo) and Ocwen (subprime). Moody's said BofA's and Chase's improvements were due to modifications and the resolution of the robo-signing issue, while Ocwen's progress was due to its aggressive approach with modifications and the acquisition of Litton.

For the modification re-default rates, all servicers stayed within the range of 45-50 percent in the subprime category. For Alt-A loan products, Citi stood out with its lower rate of 23 percent, compared to 38 percent for other servicers. For Jumbo loans, Citi continued to set itself apart for having a much lower rate, while GMAC's re-default rate rose to 40 percent.

Servicers continued to see longer foreclosure timelines for Jumbo, Alt-A, and subprime product types. Moody's measures the average number of days between foreclosure referral and foreclosure sale. The report noted GMAC's high concentration of judicial state foreclosures was one of the main reasons it was the worst in all categories.

""Judicial state backlogs, especially in the states of NJ, FL, PA and OH, continue to drive the high volumes and extended timelines for all servicers,"" the report stated.

Timelines for aged inventory, or the time it takes servicers to resolve their highly delinquent loans (90-plus), remained mostly unchanged. BofA did see an increase for Jumbo timelines, while GMAC and Wells Fargo maintained their status as the best performers.

About Author: Esther Cho


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