Servicers of residential mortgage-backed securities (RMBS) continue to increase loss mitigation resolutions, including a significant push in the number of loan modifications, according to a report from Fitch Ratings.
As of September 2009, roughly 10% of all RMBS loans and 25% of all subprime loans received at least one modification. A year ago, servicers modified only 3% of all loans, and 7% of subprime loans, according to the report.
Fitch estimated a “conservative” projection of 65% to 75% of subprime delinquencies of 60 days or more that will re-default after 12 months post-modification.
“As in prior statements, market pressures to allow more aggressive [modifications], continued home price declines, and the economy’s effect on job losses factor into this projection,” according to Fitch analysts.
The projection includes re-defaults on loans that received a second and third modification after the first one failed. Roughly 11% of all modified RMBS loans received a second modification, and of the modifications done in Q308, 17% were re-modified, according to the report.
The monthly modification volume dropped from the peak in the middle of 2009, because loan modifications under the Home Affordable Modification Program (HAMP) are not considered complete until a three-month trial finishes.
Through HAMP, the US Treasury Department allocates capped incentives to servicers for the modification of loans on the verge of foreclosure.
HAMP’s first modifications did not begin to complete the trial period until early July and are not included in the January through June 2009 results, according to the report. But cumulative modifications increased during the first half of 2009 as servicers continued non-HAMP modifications.
“Initial indications suggest the conversion from trial mod under HAMP to actual finalized
modification status has been disappointing,” according to Fitch analysts.
Through September 2009, there has been no “pick-up” in modification activity stemming from the completion of HAMP trial modifications.
According to a report from the Congressional Oversight Panel (COP), which reviews actions taken by the Treasury, only 1,711 of the 360,000 trial modifications started passed out of the HAMP trial period and into permanence as of September 1.