Fitch: Recent U.S. RMBS Mod Performance Improves, But Use is Limited

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NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: U.S. RMBS Servicers Loss Mitigation/Modification Efforts

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=654893

Performance on recent U.S. RMBS mortgage loan modifications has improved, however the number of new mods completed continues to decline, according to Fitch Ratings in a new report.

Only 32,800 new mods were reported in September 2011, compared to 86,400 mods completed in April 2009. This cumulatively brings the total of loans receiving at least one mod to 24% of all non-agency RMBS by balance. Further, 48% of all subprime loans have now been modified at least once. Fitch attributes the decline in new mods to fewer borrowers qualifying or accepting offers under current programs.

The more recent mod efforts are posting better results relative to earlier programs. This indicates that standardization of mod guidelines helped to focus attention on creating more sustainable loan mods. These features included affordability of payments, priority in mod features and targeted interest rate reductions. Fitch now projects 45% - 55% of all recent mods will re-default within 12 months, down from earlier projections of 50% - 60% for prime and 60% - 70% for subprime and Alt-A.

However, Fitch believes existing mod programs, while providing an alternative for some newly defaulted loans, will not resolve the more severely stressed borrowers. It remains to be seen if any additional features or new programs will be developed to address the high level of distressed loans in these products.

The use of alternative methods to FC, such as short sales, has increased, resulting in reduced loss severities when compared to real estate owned (REO) sales. As of September 2011, 60% of prime, 41% of Alt-A, and 39% of subprime liquidations were not by REO sale. However, this improvement is being offset by increasing timelines for the resolution of seriously delinquent loans, indicating that many borrowers are electing to remain in the property longer, staying through the extended FC process.

Timelines have also been materially impacted by various process concerns, documentation defects, moratoriums, required mediation, and court delays. Fitch expects this environment to continue in the near to mid term and the inventory of unsold homes to remain high, putting further negative pressure on home prices well into 2012.

'U.S. RMBS Servicers' Loss Mitigation/Modification Efforts: Update V' is available at 'www.fitchratings.com' or by clicking on the above link.

Fitch, Inc., One State Street Plaza, New York, NY 10004

Additional information is available at 'www.fitchratings.com'

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