Loan Modifications Are on the Decline: Moody's

As robo-signing reviews reach completion, servicers are beginning to work through some of their foreclosure backlogs, according to a third-quarter report from Moody’s Investors Service.

Moody’s reports that as servicers work through the bulk of their delinquencies, modifications are on the decline. Servicers are now turning to loss mitigation alternatives, including short sales and deeds in lieu, Moody’s says.
Moody’s calculated a decline in “total cure and cash flowing,” measuring successful loss mitigation efforts in the third quarter. The decline “resulted from servicers having worked through significant portions of their eligible 60-plus delinquencies,” according to Moody’s.
Citi, GMAC, and Chase experienced the greatest decreases in cures.
Among subprime loans, Ocwen posted the highest cure rate – 44 percent. The high cure rate at Ocwen is linked to high numbers of modifications relative to its peers.
Moody’s notes that the high cure rate includes “a significant number of re-modifications,” which occur when an initial modification fails.
Ocwen saw re-defaults among 54.5 percent of its subprime modifications, the highest rate among its peers.
Ocwen was followed by Bank of America with a 50.5 percent re-default rate on modifications of subprime loans.
BofA also posted the highest rate of re-defaults of ALT-A loans (42.3 percent) and the second-highest re-default rate for jumbo loans (35 percent).
Consistent with its high re-default rate, Ocwen ranked highest for re-modifications of subprime loans. Ocwen’s re-modification rate for the third quarter was 24.8 percent. The second-highest re-modification rate was seen at Wells – 6.8 percent.
The high re-default and re-modification rates at Ocwen “calls into question Ocwen’s process in evaluating borrowers for a modification,” Moody’s states.
However, Moody’s also concedes, “not all of the first modifications were necessarily completed by Ocwen due to servicing acquisitions prior to the analysis period.”
Moody’s also reports foreclosure sale to REO liquidation timelines are little changed from the second to third quarter. However, Moody’s forecasts longer timelines throughout the year.