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Fitch Notes Inconsistencies in Principal Forbearance Reporting

""Fitch Ratings"":http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp has observed inconsistencies in the way servicers report losses in cases of principal forbearance. According to the agency, before 2010, pooling and servicing agreements did not require servicers to report forborne principal as losses.


The Home Affordable Modification Program (HAMP) began requiring servicers to report forbearances as losses in June 2010. When forborne principal is repaid, servicers are to report the amount as a recovery.

However, non-HAMP modifications and HAMP modifications completed before 2010 are not reported in a consistent manner, according to Fitch.


Nationstar Mortgage announced it is revising losses on loans with principal forbearances acquired in 2012 from Aurora Bank FSB and Aurora Loan Services. The revision adds about $1 billion in losses to residential mortgage-backed securities serviced by Nationstar.

The loss amount is about 1.5 percent of the total balance of the Aurora pools of loans, according to Fitch.

As a result, Fitch will dole out some downgrades. However, Fitch ""does not anticipate significant rating changes as a result of the revision."" Fitch will review Nationstar's revisions at the end of the month.

Additionally, Nationstar clarified in its announcement that it does not expect similar revisions to loans acquired from Bank of America or any other loans it services.

Ocwen Financial Corp., announced similar revisions, reporting $1 billion in losses in May.

""Other than Nationstar, no servicer reported a significant amount of HAMP principal forbearance yet to be realized as a loss,"" Fitch stated.

Some servicers have reported non-HAMP forbearance losses that are not yet realized, but Fitch does not expect these servicers to revise losses on the affected loans.

""Consequently, Fitch does not expect any additional large revisions for realized losses tied to principal forbearance,"" Fitch said.


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