During the market peak of 2006, mortgage servicers were advancing payments on over 90% of delinquent loans across all asset types. Nowadays, the number has dwindled to 63% for subprime delinquent loans and 88% for Alt-A delinquencies – evidence of servicers' more pessimistic view of recovery prospects, according to Fitch Ratings' Performance Metrics results.
Servicer advancing on prime delinquent loans has remained relatively unchanged, at roughly 96%. Falling home values and extended liquidation timelines are primarily responsible for a decline in servicer advancing.
‘The large home-price declines have led to higher loan-to-value ratios and have caused servicers to deem advances non-recoverable sooner,’ says Director Darren Liss. ‘Also, longer liquidation timelines have substantially increased liquidation expenses, making servicers less likely to advance.’
Servicers are given discretion as to the timing and calculations used to make advancing decisions, which vary materially from servicer to servicer, Fitch explains. For the most part, the majority of servicers actively analyze loans for advance recovery determination no later than the 90th day of delinquency.
Most servicers' analyses take into account factors such as property values, foreclosure timelines and expenses, outstanding advances and anticipated liquidation/short sale recoveries. However, some servicers take a more granular approach to their analysis, using current local market REO sales and recovery data to determine anticipated loan-level recoveries.
When examining recent advancing percentages by delinquency status, servicers are advancing on approximately 90% of 30- and 60-day delinquent loans in each of the prime, Alt-A, and subprime sectors. However, advancing for more serious delinquency stages shows a greater distinction between sectors.
For loans in foreclosure, the servicer advancing percentages for prime, Alt-A, and subprime are currently 96%, 87%, and 60%, respectively. For assets in REO, servicer advancing percentages are 93%, 76% and 47%, respectively, for the three sectors.
SOURCE: Fitch Ratings