U.S. RMBS (Residential-Mortgage Backed Security) Delinquencies Dropped in Q4 2012

According to Fitch Ratings, a global rating agency dedicated to providing ratings through independent and prospective credit opinions, research and data, reported severe delinquencies for U.S.  RMBS has shown improvement in all sectors in the fourth quarter 2012. The agent also predicts RMBS delinquencies to continue to decrease in 2013.

Fitch reported the 60-plus day delinquency index of 28.6 percent at the end of Q4 2012, down from 29.1 in Q2 and a decrease from 30.6 percent in Q4 2011.

Fitch stated, the improvement “reflects positive selection in the remaining pools, loan modification efforts by servicers, and positive home price trends.”

Liquidation rates for subprime and Alt-A loans reported a decline in the fourth quarter because of modifications in foreclosure procedures from servicers following stipulation and guidelines from the $25 billion national mortgage settlement.

The amount of losses on liquidated prime, subprime, and Alt-A loans improved with the increase in home prices as well as the increased use of short sales. Fitch predicts the amount of losses to continue to reduce in 2013.

Short sales typically provide better recoveries on distressed loans since the time to resolution is much faster than a full foreclosure and the sale does not suffer from the market stigma of being a bank-owned property,” Fitch explained.

The increasing use of short sales also aided in reducing foreclosure completion rates to near historical lows. The report noted close to 60 percent of distressed loan resolutions were short sales and not foreclosures in fourth quarter.

Another excellent news, according to Fitch, liquidation timelines saw the first decline since the start of the financial crises with the help of short sales as well.

On the other hand, timelines for loans in the foreclosure process increased as servicers face the challenge of implementing new procedural requirements from the national mortgage settlement, Fitch noted.

The balance of unsettled loans in RMBS mortgage pools slips below $1 trillion in Q4 2012 for the first time since 2004.

From the start of 2012 to the beginning of the fourth quarter, national home prices have risen by 5 percent, with California seeing a more than 7 percent increase, according to Fitch.

“Helping the price increase was low mortgage rates and a lower percentage of distressed property liquidations,” Fitch stated.

Even though the prices appear to be getting better, Fitch believes the prices might still be somewhat above sustainable levels and certain areas are still at risk of declines.

“The Northeast in particular has not yet seen the significant declines seen in the rest of the country and as such is vulnerable to further home price declines,” said Grant Bailey, managing director at Fitch.

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