Fitch Ratings’ Q2 RMBS Servicer Metric Report found late-stage non-prime delinquencies down year-over-year (YOY) for both bank and non-bank mortgage servicers.
Bank servicers reported a drop in 90+ day delinquencies, from 13% to 10% YOY, down 12% last quarter. Non-bank servicers saw a drop from 8% to 4% YOY, with a 2% fall from Q1.
The numbers suggest that holders with loans in forbearance might be financially recovering and exiting policies before many expire.
“Bank servicers showed the most significant loss mitigation results over the past year with forbearance plans now down to 38% from 93% of all loan workout plans while repayment plans and loan modifications have seen significant increases as borrowers exit forbearance plans,” said Director Richard Koch.
“Non-bank servicers are also reporting positive loss mitigation trends, albeit to a more modest degree.”
Non-bank mortgage servicers have more flexibility and are more likely to give loans to people with lower credit scores or nontraditional incomes such as self-employment. For borrowers traditional banks might reject, non-bank providers are attractive despite higher rates and fewer standard forms of forbearance.
Last year’s mortgage boom coincided with the highest rate of non-bank lending in American history, with servicers issuing two-thirds of mortgages in 2020.
Nonprime bank delinquencies have decreased in the short term but are trending up. Non-prime non-bank delinquencies are trending down long-term.
The results may be due to declining forbearance rates and new rules that discourage foreclosures re-starting on owner-occupied properties.
Fitch Rates publishes the RMBS Servicer Metric Report quarterly.