Delinquencies for U.S. residential mortgage-backed securities (RMBS) will continue a slow decline this year, according to Fitch Ratings in its new mortgage market index.
Fitch Ratings' 60-plus day delinquency index improved to 28.6% by the end of the fourth quarter of 2012, down from 30.6% a year earlier. Despite an aging inventory of distressed loans, liquidation rates fell during the fourth quarter as servicers continued to implement a number of regulatory changes surrounding foreclosures.
Fitch Ratings adds that the percentage of outstanding loans more than 60 days delinquent improved across all sectors in RMBS.
‘Liquidation rates declined modestly in the fourth quarter for subprime and Alt-A loans as servicers continued to implement changes to their foreclosure procedures,’ says Fitch Ratings. ‘In particular, a large settlement reached in early 2012 between the state and federal governments and the five largest residential mortgage loan servicers mandating new servicing practices was required to be implemented by the fourth quarter.
‘Loss severities on liquidated loans improved across all three RMBS sectors, primarily reflecting improvements in home prices,’ Fitch Ratings adds. ‘Also, servicers continue to reduce their monthly advancing for missed borrower payments; this is resulting in improved loss severities since a smaller portion of recovery proceeds are applied to the reimbursement of servicer advances. An additional positive influence on loss severities has been the increase in short sales. Servicers have been increasingly allowing borrowers to sell their properties on their own for less than the mortgage amount.’