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Unexpected Decreases in April 2020 Loan Delinquencies Among Some Non-Agency RMBS Servicers

Senior Advisor

According to the Mortgage Bankers Association’s latest Foreclosure and Call Volume Survey[1], the total number of loans in forbearance increased to 8.46% from the prior week’s total of 8.36%.  A total of 4.2 million homeowners are now on forbearance plans[2].  These numbers represent the Government-Sponsored Enterprise (GSE) population which includes, Freddie, Fannie, Ginnie and FHA mortgage loans.

According to Black Knight, Inc., who uses their technology to analyze housing data, the combined residential mortgage population consisting of the GSE and non-GSE mortgages, the weekly forbearance population dropped to 8.9% from 9% last week[3].  This is the first weekly decline since the CARES Act was initiated on March 27, 2020.  

The portion of the mortgage market that is not sponsored by a government agency is known as the non-agency RMBS market.  This segment is also being offered forbearance options.  However, the forbearance plans vary significantly depending on the servicer.  According to Black Knight, there are 1.3 million non-agency mortgages in forbearance, representing 9.6% share of the market[4].  

We take a closer look at a subset of the non-GSE RMBS market, known as legacy RMBS.  For this analysis, we analyzed approximately 4,000 non-agency RMBS trusts issued between 2004 and 2007.  Many investors are concerned with the potential for increased delinquencies, defaults, and a decrease in servicer advances.  The CARES Act forbearance initiative was initiated to mitigate the borrowers’ inability to make their monthly payment due to circumstances associated with the pandemic.  The state by state shutdown has resulted in increased unemployment, from 3.5% to 14.7%, followed by a surprising decrease in May to 13.3%[5]

We reviewed the number of loans in the 30-59 day and 60-89 days past due delinquency buckets.  As expected, there were significant increases in the number of loans past due. However, while reviewing the data we unexpectedly observed many trusts with declining delinquencies. In fact, there were more legacy non-agency RMBS trusts with decreasing delinquencies than there were with increasing delinquencies.  We hypothesize that this is because servicers in these trusts decided to reclassify many delinquent loans as modified and current loans.

Also important to RMBS investors is the extent to which servicers advanced for forborne loans.  This will be a subject of an upcoming post. 

 

Trusts with Increasing Delinquencies from March to April 2020

  30-59 Days Past Due 60-89 Days Past Due
# of trusts with increased delinquencies 1,568 589
Average % Increased 94.08% 52.09%

 

Trusts with Decreasing Delinquencies from March to April 2020

  30-59 Days Past Due 60-98 Days Past Due
# of trusts with decreased delinquencies 1,113 710
Average % decreased 32.14% 37.89%

 

Shown below are 20 of trusts with decreasing delinquencies from April to May remittance reports (i.e., March to April loan activity).

Below is the modification activity on the selected trusts

 

Below is additional information summarizing the delinquencies and modification activity on select trusts serviced by PHH Mortgage Corporation. As you can see the MoM 60-89 days delinquent loan count decreased substantially, and the modification activity increased exponentially in May. 

 

According to PHH Mortgage website – customers who have experienced a financial hardship due to COVID-19, the following benefits are available: 

  • Payment forbearance with repayment options
  • No negative credit reporting during this period
  • Waiving late fees during this period
  • Postponing the foreclosure sales process during this period

What happens at the end of the forbearance period? Potential options include:

  • Forbearance period extension
  • Lump sum payment
  • Repayment plan
  • Loan modification

We realize that we are in the very early stages of a potential W, U or V shaped recession and many of the economic indicators such as unemployment, mortgage rates, forbearance activity continue to be volatile. However, we will continue monitoring their impact on the mortgage market and provide future subject specific updates to keep you apprised of relevant market events.  

 

Investors seeking assurance that their RMBS investments are being serviced correctly should contact The Oakleaf Group for a portfolio review.   

 

[1] https://www.mba.org/2020-press-releases/june/share-of-mortgage-loans-in-forbearance-increases-to-846

[2] https://www.mba.org/2020-press-releases/june/share-of-mortgage-loans-in-forbearance-increases-to-846

[3] https://www.blackknightinc.com/black-knight-number-of-homeowners-in-covid-19-related-forbearance-plans-falls-for-first-time-since-crisis-began-8-9-of-all-mortgages-now-in-forbearance/

[4] https://www.blackknightinc.com/black-knight-number-of-homeowners-in-covid-19-related-forbearance-plans-falls-for-first-time-since-crisis-began-8-9-of-all-mortgages-now-in-forbearance/

[5] https://www.cnbc.com/2020/06/05/jobs-report-may-2020.html