Major defaults improve for non-preferred mortgage borrowers


Figures for late-stage delinquency treatment rates in the securitized subprime mortgage market improved significantly in the second quarter, suggesting collection rates are strong even for non-traditional borrowers.

The overall 90-day default rate for securitizations held in banking portfolios has fallen to 10%, from 13% a year ago and 12% the previous quarter, according to a Fitch Ratings report released on Tuesday. The equivalent non-bank default rate for risky private securitizations in this category fell to 4%, from 8% the previous year and 6% in the first quarter. Declines of 2 percentage points from the first quarter in both categories were the most noticeable in the past 12 months. Since the second quarter of last year, consecutive quarterly declines have not exceeded 1 percentage point.

The numbers may indicate that those facing some of the highest hurdles among the large pool of borrowers with long-term forbidden payments may have been motivated by economic improvement and the individual recovery of debt. go out in front of a lot expirations were to occur in the third trimester.

“With the caveat that this is aggregate data, I think the numbers give us cause for caution,” said Richard Koch, director at Fitch Ratings and author of the second quarter Servicer Metric Report. “I think what we saw in the second quarter suggests that with some continued improvement in the economy and unemployment, people in the non-premium market might opt ​​out of extensions and go back to work. maybe the reason why delinquencies started to drop a little more significantly. ”

Anecdotal conversations with service agents suggest some of the exits were made by borrowers who continued to make regular payments on their loans even though they were on hold, Koch said. Some borrowers have requested payment suspensions just in case, given the uncertainties associated with the pandemic, but ultimately never needed them due to available government bailout funds or other reasons.

Nonbank delinquency rates for securitized subprime loans were generally lower than for banks, as they tend to be more frequent contact services, Koch said. The total number of banks also remains much higher than in the first quarter of last year, when the pandemic first began in the United States.

The long-term trendline of non-prime bank delinquencies since the first quarter shows them increasing, although declines have been observed in the short term. The long-term trendline in the same category for non-banks is down.

Non-privileged borrowers who obtain loans in the private securitized market may have lower credit scores, non-traditional income or other needs that disqualify them for government linked mortgages with lower rates and forms of debt. more standard abstention.

However, the fall expiration dates of COVID-related forbearance in the broader government-linked market may have played a role in motivating these borrowers. Where agreements governing individual securitizations allow, even private providers may prefer to structure their forbearance according to broader market practices. Some states have issued missives even calling on private operators to do so, Koch noted.

Lower abstention rates and new transitional rules that are likely to discourage the resumption of foreclosures on owner-occupied properties for the remainder of the year may explain why agents are holding up well amid these changes, Koch said. The number of service officers remained broadly stable, with the number of loans per full-time employee increasing for non-banks and decreasing slightly among banks. The decline in real estate inventories continued into the second quarter, but at a slower pace, likely reflecting the fact that new inventories were limited by foreclosures and properties that have been on the market for a long time have tend to be the harder ones to sell, Koch said.

All overall trends in the report reflect a wide range of performance of different Fitch service providers. Performance varied considerably from company to company depending on several factors such as their size and the type of institution or loans involved.

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