Tag Archives: Redefault

Distressed inventory is on the decline, but the number of months it will take to clear these distressed homes from the market is on the rise. According to the latest report from Morningstar Credit Ratings, distressed inventory among non-agency residential mortgage-backed securities dropped 20 percent to 891,000 properties as of September. However, Morningstar says it will take 49 months to work through this inventory given current market dynamics. That's 11 months longer than the assessment in 2012.

Over the life of the government's Home Affordable Modification Program (HAMP), 1.25 million homeowners have received permanent HAMP modifications, and 27 percent of those have later redefaulted on their loans, according to a quarterly report to Congress from the TARP special inspector general. The inspector general expressed concern as far back as April that HAMP redefaults were ""increasing at an alarming rate.""

Upon closer examination, the Home Affordable Modification Program (HAMP) has not helped as many borrowers as it may seem, according to a report from SIGTARP. HAMP, a government loan modification program created to prevent foreclosures, has provided about 1.2 million modifications to distressed borrowers since its inception in 2009. Of those borrowers, 306,538 redefaulted after falling behind on their payments by three months, which means in actuality, 865,100 are still actively in the program, the taxpayer watchdog agency revealed. Of the redefaulters, 22 percent have entered into the foreclosure process.

In June, an increase in the sale of REO properties drove down the CMBS delinquency rate, bringing it to a three-year low, Fitch Ratings reported. At 7.18 percent, the CMBS delinquency rate fell 19 basis points (bps) from the month before in May and is at its lowest level since March 2010. ""The CMBS delinquency rate is likely to improve further in the coming months as other large REO properties are sold, including a slew from ORIX's portfolio,"" said Scott Pritchard, director at Fitch.

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.

The pace of modifications is slowing compared to the 2010 peak, but repeat modifications are on the rise, according to a recent research report from Barclays. Not only are mods returning for seconds, but researchers from Barclays also found remodifications perform more poorly than first-time mods. Barclays gave three reasons for the rise in repeat mods: first-time mods did not reduce payments enough, leading to higher re-defaults; servicers are taking advantage of HAMP principal reduction alternatives; and servicing transfers are leading to an increase in remodifications.

In the third quarter of this year, the overall percentage of mortgages that managed to stay current improved from last year, but declined slightly quarter-over-quarter, according to a report from the Office of the Comptroller of the Currency (OCC). The report also found foreclosure activity ""remains elevated,"" but fewer properties entered the foreclosure process. In Q3, more home retention actions were also applied compared with home forfeiture actions (foreclosure sales, short sales, and deeds-in-lieu).

HUD and Treasury Department released the latest scorecard Friday, providing a look at a market in recovery but threatened by an expected increase in foreclosure activity. According to the report, foreclosure starts and completions both declined in June, painting a picture of continued recovery. However, officials expect foreclosure activity to pick up in coming months as firms lift delays in foreclosure processing.

Based on documents Reps. Elijah Cummings (D-Maryland.) and John Tierney (D-Massachusetts) received, Acting Director Edward DeMarco's reason for not allowing principal reduction appears to be based on ideology, not analysis, according to a May 1 letter they wrote to the director. The letter states beginning in 2009, Fannie Mae officials worked with Citibank to develop a ""shared equity"" principal reduction pilot program that was ""suddenly suspended"" in July 2010. In the letter, the representatives stated that on February 8, a former Fannie Mae employee informed them the pilot program on principal reduction was terminated by officials who were ""philosophically opposed to writing down principal balances.""

Based on a metric devised by Moody’s Analytics, GMAC, SLS, and American Home performed better compared to other subprime servicers in terms of cash collected relative to losses on delinquent loans. This was mainly due to shorter liquidation timelines that resulted in lower loss severities on liquidated or foreclosed properties, according to an article in Moody's ResiLandscape. GMAC's high metric is due primarily to shorter liquidation timelines and because the servicer maximizes cash flow on modified loans by keeping the re-default rates in line with the industry average even though it offers relatively low levels of relief in terms of principal and interest.