Posted on Tuesday, December 14, 2010
The time mortgage loan servicers take to resolve delinquent loans through modification or foreclosure varies widely. According to an analysis by Moody’s Investors Service, Bank of America has demonstrated
the weakest performance measured both by its speed in resolving the status of delinquent loans and by its proportion of delinquent loans that have yet to be resolved. The ratings agency found that GMAC Mortgage, on the other hand, has generally performed better than its peers.
Moody’s examined seven major servicers and their resolution of delinquent loans held in residential mortgage-backed securities (RMBS). In addition to BofA and GMAC, the subjects of the analysis included Wells Fargo, JPMorgan Chase, CitiMortgage, Ocwen, and Litton Loan Servicing.
The ratings agency looked at residential mortgage loans that were seriously delinquent or in default at any time between June 2009 and August 2010 and that belonged to 2005-2008 vintage RMBS loan pools. The analysis was book-ended with data as of the end of this August so that the results were not skewed by delays resulting from the recent foreclosure affidavit problems and moratoriums that began cropping up in September.
Servicer performance was measured across three main dimensions:
1. For delinquent loans that have neither been permanently modified nor liquidated, the average length of time they have been seriously delinquent;
2. For loans that have been liquidated or modified, the average time taken to liquidate or modify them since they first became seriously delinquent;
3. The relative proportions of a servicer’s loans that at some time in the study’s timeframe were 90 days delinquent and that now reside in each loan status (three or months past due, in foreclosure, or REO).
Overall, Moody’s concluded that Bank of America has performed the worst when it comes to resolving delinquent loans across all three asset classes examined – subprime,
Alt-A, and jumbo. The North Carolina-based bank holds the largest proportion of unresolved seriously delinquent loans, and its seriously delinquent loans have generally been delinquent longer than those of the other major servicers.
Moody’s says these observations are particularly true in the subprime sector, in which BofA inherited a large portfolio of poorly-performing loans when it acquired Countrywide.
The agency’s analysts explained that these loans have been unresolved for particularly long periods, primarily because Bank of America agreed in a multi-state settlement with attorneys general in October 2008 to evaluate each modification-eligible Countrywide loan on a case-by case basis and agreed not to initiate foreclosure proceedings until it had exhausted all modification efforts.
Moody’s described the variation in the approach adopted by different servicers in resolving delinquent loans as “large.” The agency highlights one such comparison that shows the migration of subprime loans serviced by BofA and GMAC Mortgage after becoming 90 or more days delinquent.
The analysis revealed that on average, Bank of America will resolve 50 percent of its loans within about 14 months of becoming 90 days delinquent, while GMAC will resolve 50 percent within only about 4 months.
Looking at the various loan groups, Moody’s says subprime loans have been 90-plus days delinquent longer than unresolved Alt-A and jumbo loans. This fact is due in part to the larger proportion of subprime borrowers that are eligible for the government’s Home Affordable Modification Program (HAMP) because they have have better loan documentation and owner occupancy levels than Alt-A borrowers and less income than jumbo borrowers, Moody’s explained.
A loan’s HAMP eligibility means that the servicer must spend more time exhausting all loss mitigation options before proceeding to foreclosure, and because of this fact, Moody’s says even subprime loans that are already in foreclosure are taking longer to be liquidated or modified than Alt-A or jumbo loans in foreclosure.
Not only does it takes longer to determine whether or not a subprime loan is eligible for HAMP, the ratings agency explained, but even in cases where servicers have exhausted all loss mitigation possibilities, properties backing subprime loans are typically in less desirable neighborhoods or lack proper maintenance when compared to properties backing Alt-A or jumbo loans and thus take longer time to market when they reach REO status.By: Carrie Bay DSNews