U.S. RMBS Delinquencies Hold Steady Amidst Conclusion of Borrower Aid Programs

Fitch Ratings, headquartered in New York, released its 2Q23 U.S. RMBS Servicer Metric Report on November 14, 2023, revealing that U.S. Residential Mortgage-Backed Securities (RMBS) delinquencies have remained relatively stable since the first quarter of 2023. This stability comes as borrower assistance programs are gradually concluding. The report provides a comprehensive analysis of current trends and changes in the RMBS servicing landscape.

Richard Koch, a Director at Fitch Ratings, noted, “Delinquencies in loan portfolios of Fitch-rated bank and non-bank servicers have either remained steady or experienced slight increases from Q1 to Q2 2023. The influence of assistance programs, including forbearance extensions and initiatives like the U.S. Department of Treasury’s Homeowner Assistance Fund, has been instrumental in keeping delinquency roll rates minimal.”

The report highlights several key trends in the RMBS sector. Bank servicers have reported that loan modifications have stayed consistent at 32% of all loss mitigation volume quarter over quarter. In contrast, non-bank servicers saw an increase in loss mitigation volume to 15% from 13%. The active forbearance plans for both bank and non-bank servicers have shown a decline, with bank servicers reporting a decrease to 34% from 37% and non-bank servicers to 27% from 35%. This decline is attributed to the exhaustion of forbearance qualifications or the winding down of extensions.

Bankruptcy caseloads have remained consistent for both bank and non-bank servicers over the quarter. However, there has been a slight shift in foreclosure caseloads. Non-bank servicers experienced an increase in foreclosure volume to 3% from 2%, while bank servicers saw a decrease to 1% from 2%. The report also notes that 90+ day delinquencies have remained stable at 3% for both bank and non-bank servicers.

An interesting trend observed in the report is the continuous decrease in highly aged Real Estate Owned (REO) inventory (over 360 days), as servicers work through their post-pandemic REO inventory. Additionally, there has been a reported decrease in both new and existing REO inventory in the 1-179- and 180-270-day categories. This trend reflects the various exit strategies available to borrowers, including significant home equity and government assistance programs, contributing to the flat delinquency roll rates.

The report also sheds light on employment trends within these services. Bank servicers have reported an 11% increase in full-time employees compared to the previous quarter, while non-bank servicers reported a marginal increase of 0.05%.

Fitch’s U.S. RMBS Servicer Metric Report published quarterly, includes data from the most recent four quarters of Fitch-rated servicer performance. It offers transparency into servicing industry trends in both bank and non-bank sectors and allows for a comparative analysis of data metrics across services. This is particularly crucial during this dynamic period in the industry.

Fitch Ratings also rates individual mortgage servicers and publishes detailed reports on them, available at www.fitchratings.com, providing valuable insights into the performance and trends within the mortgage servicing sector.