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Tag Archives: Fitch Ratings

Rise in Prices, Use of Short Sales Lead to Declining Loss Severities

Rising home prices and higher levels of short sales are leading to declining loss severities in the residential mortgage-backed securities (RMBS) market, according to Fitch Ratings. The agency's quarterly report noted its Loss Severity Index declined from 67.5 percent in the first quarter of 2012 to 64.2 percent in the first quarter of this year. Loss severities on short sales tend to be 10 to 15 percent lower than loss severities on REOs, according to Fitch. Also, short sales are generally resolved about 12 months sooner than REOs, the agency stated.

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Fitch: High Rate of Unsuccessful Mods Threatens Asset Quality

Servicers continue to make strides in home retention efforts, completing more than 360,000 retention actions in the fourth quarter of 2012. However, Fitch Ratings detects continued weak asset quality trends, especially among loans modified from 2008 through 2010. In fact, Fitch's findings lead the agency to fortify its belief that troubled debt restructurings should be counted as nonperforming assets. ""[W]e regard the high delinquency and foreclosure rates for recently modified mortgages as reflective of still elevated residential mortgage asset quality problems,"" Fitch said.

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Fitch: Prepayment Rates Elevated on Newer Loans

Mortgages originated from 2010 and into early 2012 are seeing elevated prepayment rates as low mortgage rates continue to encourage refinance activity, Fitch Ratings explained in a recent report. Despite the high levels of prepayment activity, the rating agency suggested ""the credit implications have been modest to date due to the high overall credit quality of the original pools."" According to Fitch, prime RMBS mortgage pools issued since 2010 had an average conditional prepayment rate (CPR) of about 42 percent.

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CMBS Delinquencies Down for 9th Straight Month

Two large loan modifications helped bring down the CMBS delinquency rate, which fell 30 basis points (bps) to 7.61 percent, down from 7.91 percent in January, according to Fitch Ratings. The dollar balance of delinquent loans also sank below the $30 billion mark, a first since February 2010, Fitch stated. The dollar balance of delinquent loans also sank below the $30 billion mark, a first since February 2010, Fitch stated.

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Report: Rise in Home Improvement Sales Confirms Recovery

Increased profits at home improvement outlets underscore Fitch Ratings' view that the housing recovery is in its early stages, the ratings agency said. Fitch pointed to ""solid 4Q12 results"" released by Home Depot (which saw a 4.6 percent rise in same-store sales last year) and Lowe's (which reported a 1.4 percent increase in same-store sales). Fitch projects the two retailers will generate same-store sales growth of 2-4 percent, reflecting ""a slightly faster growth rate in sales channels serving professionals.""

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Fitch: GSEs’ Key Role in Recovery Limits Motivation for Reform

As the private sector struggles with regulatory uncertainty, Fannie Mae and Freddie Mac will continue to maintain their dominant role in the housing market, according to a report from Fitch Ratings. Since the GSEs act as key players in the market's fragile recovery, political motivation for far-reaching GSE reform has been limited, the rating agency explained. Although regulators and politicians have emphasized the need for the private sector capital to enter the mortgage market, Fitch said ""results have been disappointing.""

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Fitch: CMBS Loans in Special Servicing Down to 3-Year Low

The volume of underperforming CMBS loans in the hands of special servicers fell to the lowest level since 2009, Fitch Ratings reported. At the end of 2012, the volume of specially serviced CMBS loans decreased to $70.6 billion after peaking at $91.7 billion in 2010, according to the rating agency. Fitch attributed the decrease to a significant drop in the number of loans transferred to special servicing in 2012 and the high number of loan resolutions.

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Fitch Finds Weaknesses in Recent RMBS Transactions

While most representation and warranty guidelines for recent residential mortgage-backed securities (RMBS) have been substantially stronger than observed in pre-crisis transactions, according to Fitch, the ratings agency has begun to encounter some proposals that fall short of the industry's recently-enhanced standards. Fitch is a strong proponent of the American Securitization Forum's Project Restart, which created a rep and warranty framework following the housing crisis. According to Fitch, the framework offers ""a high standard that provides the most assurances about loan origination and underwriting quality."" Some of the most recent RMBS transactions the agency reviewed stray from these guidelines and are ""weak,"" according to Fitch.

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Fitch: Market Poised for Bulk Sales in Commercial Sector

The market is now poised for many banks to begin unloading nonperforming assets--particularly commercial real estate--in the form of bulk sales, according to Fitch Ratings. Tightening yield spreads in the commercial market, pressure from regulators regarding loss reserve positions, and limited financing will prompt banks to unload nonperforming commercial assets over the next 12 to 18 months, according to the ratings agency.

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Fitch: CMBS Delinquencies Fall Again; Georgia Remains ‘Problem Spot’

The national delinquency rate for commercial mortgage-backed securities (CMBS) began the year with another decline, marking the eighth consecutive month of decreases, according to Fitch Ratings. The rating agency, however, noted regional struggles in Georgia. In January, the CMBS delinquency rate fell 8 basis points, ending the month at 7.91 percent. January's CMBS delinquency rate is now at the lowest level since October 2010, when the rate stood at 7.78 percent.

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