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Foreclosure Timelines to Increase More Rapidly in Non-Judicial States

RMBS investors paying for longer timelines

Aug. 7, 2013

By Mortgage Daily staff

A new ratings agency report indicates that increasing foreclosure timelines are eating into the wallets of investors of residential mortgage-backed securities. One surprising finding is that the rate of increase is expected to be higher in states where mortgage servicers are not required to utilize the courts to foreclose.

The time it takes to complete a foreclosure is projected to lengthen for the foreseeable future, and the cost of the longer timelines will be borne by RMBS investors.

Although foreclosures in states that require judicial foreclosures are far more elevated than in their non-judicial counterparts --the timelines are expected to increase at a faster rate in non-judicial states.

That assessment was made in a report this week from Moody's Investors Service.

According to the New York-based ratings agency, changes in foreclosure regulations in some key non-judicial states are behind the increased timelines.

"Timelines for pending foreclosure inventory remain significantly longer than those for completed foreclosures, which means foreclosure timelines will continue to increase," Moody's Senior Vice President Bill Fricke said in the report. "Some servicers, however, have brought down the average age of the loans in their pending foreclosure inventory, meaning that the rate of increase in foreclosure timelines should start to slow."

GMAC was the only servicer that increased its current-to-worse roll rate in the first quarter. Moody's attributed the poor metric to conflicting priorities -- including the first-quarter transfer of mortgage servicing rights on conventional agency loans to Walter Investment Management Corp., the pending integration of staff and systems to Ocwen Financial Corp. and overall uncertainty of future operations.

GMAC reportedly has the worst roll rates among servicers analyzed by Moody's.

The report indicated that JPMorgan Chase & Co.'s saw lower modification volume in the first quarter --driving down total cure and cash flowing rates.

At the same time, Bank of America Corp.'s rates improved through the transfers of non-performing loans to specialty sub-servicers.

Re-modification volume increased at both BofA and Wells Fargo & Co. as a result of efforts to meet performance goals laid out in the multi-state servicer settlement.

Moody's noted that while Ocwen's re-modification rate fell along with its delinquent loan population in the first quarter, the rate is likely to increase as a result of its acquisition of portfolios from Homeward Residential Inc. and GMAC.

"Moody's expects that timelines will continue to lengthen, as they did in the first quarter, because court systems in judicial states such as New York, New Jersey and Florida remain overwhelmed by the sheer number of cases awaiting processing," the report stated.

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