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July 21 (The following statement was released by the rating agency)
Annualized liquidations of U.S. RMBS loans increased last quarter following seven straight quarters of declines, according to Fitch Ratings in its latest quarterly index report.
The conditional default rate (CDR), or annualized rate of liquidations, increased 20 basis points (bps) in second-quarter 2014 (2Q'14) to 4.92%, this after nearly two years of declines from 9.76% in 2Q'12. The decline was driven primarily by a shrinking distressed inventory and a decrease in the use of short sales. The recent turnaround in the trend can be partly attributed to a growing portion of bank owned (REO) properties, which typically liquidate much faster than those that are still in the foreclosure process. The rate of completed foreclosures to REO property has trended higher for four consecutive quarters. 'More distressed mortgage loans are making their way through the foreclosure pipeline into REO and those properties are generally sold quickly' said Director Sean Nelson. 'The turnaround in liquidation rates has also been supported by greater homebuyer demand fueled by low mortgage rates and warmer weather. ' While the aggregate CDR amount increased, performance varied by sector. The subprime sector drove the change with a notable increase of 60bps to 6.1%, while prime jumbo (up 12bps) and Alt-A (down 15bps) moved more modestly.
There have also been CDR differences along foreclosure process lines. The declines in CDR over the last two years have been concentrated in states with non-judicial foreclosure processes. The percentage of loans that are 90 or more days delinquent in non-judicial states has declined to roughly 15% from a peak of nearly 27% in late 2009. In contrast, the 90+ delinquency rate in judicial states has remained close to 35% over the same time period. 'Non-judicial states are disposing of distressed loans faster than judicial states, and their distressed inventory is now less than half the size of judicial states,' said Nelson.
Fitch's index is published quarterly and highlights performance trends in legacy and new issue RMBS, house price conditions and mortgage market developments. Fitch's CDR index measures the annualized involuntary prepayment rate among U.S. private label, securitized mortgage loans. The Mortgage Market Index -U.S.A. is part of Fitch's quarterly structured finance index reports. It is available at 'www.fitchratings.com' or by clicking on the below link.
Link to Fitch Ratings' Report: Residential Mortgage Market Index â€” U.S.A.