Fitch: RMBS Servicers Focus on Struggling Borrowers; Delinquencies Remain Flat

(San Francisco photo courtesy Jessica Butler via Pexels.)

Servicers continued to work with struggling homeowners to avoid loan default as delinquent loans remained flat in late 2022, according to Fitch Ratings’ fourth-quarter U.S. RMBS Servicer Metric Report.

“While loan portfolio delinquencies for Fitch-rated bank and non-bank servicers were flat or improved for the fourth consecutive quarter, the impact of borrower assistance programs and successful workout strategies is holding new foreclosure filings and, consequently, new REO properties, at a minimum,” said Fitch Director of Structured Finance-RMBS Richard Koch.

The report said REO inventory trends during the last four quarters reflect a continuing decrease in highly aged inventory (greater than 360 days) as servicers continue to work through their post-pandemic REO inventory. But servicers reported a 5% increase in new REO properties in the 1- to 179-day category, which it called a reflection of the resumption of active foreclosure filings that commenced in the fourth quarter. The inflow of new REO properties is 60% less than the previous quarter’s reported data, Fitch said.

“Bankruptcy and foreclosure filings and 60- to 90-plus day delinquencies showed no significant change quarter-over-quarter for bank and non-bank servicers, although bank servicers showed a 1% decline from last quarter’s 2% reported new foreclosure filings,” the report said.

Fitch noted bank and non-bank servicers reported a continuing decrease in loan modifications quarter-over-quarter, to 25% from 31% and to 16.5% from 17%, respectively. Active forbearance plans for banks and non-banks decreased significantly quarter-over-quarter to 11.50% from 37% and to 16.50% from 42%, respectively.

“The significant decline in forbearance exits may be attributable to the availability of other borrower assistance programs such as the U.S. Treasury’s Homeowner Assistance Fund program and options offered by mortgage servicers, including short sales, deferments and deed-in-lieu of foreclosure,” the report said, noting borrower assistance programs accounted for 44% of monthly loss mitigation workout volume for bank servicers, an increase from 2.39% over the previous quarter. Non-bank servicers reported a 9% decline from the previous quarter to 20.55%.

Other key performance trends reported by Fitch-rated servicers:

–Bank servicers reported a minimal decrease in full-time employees for the third consecutive quarter, with an average reduction of 4% from last quarter.

–Non-bank servicers downsized about 6% on average from the previous quarter.