“As timelines on distressed inventory continue to lengthen, mortgage loss severities will remain elevated and continue to offset the positive movement of home prices,” says Fitch director Sean Nelson in a report issued Tuesday.
"Longer liquidation timelines result in higher costs associated with both servicer advancing and property maintenance, so while rising home prices result in higher proceeds on liquidated properties, longer timelines cut into those proceeds vis-a-vis the higher costs,” Nelson told this publication. "It's important to note that increases in timelines do not always completely offset the effect of home price gains."
Loss severities on subprime credit loans are stable while alternative-A and prime-credit loans’ loss severities are about 5% better than they were year-over-year. National home prices are rising relatively more quickly year-to-year, by roughly 10%. Home prices by the end of the third quarter were slower month-to-month, according to the National Association of Realtors. This also cuts into liquidations’ profitability.
Timelines through the third quarter of this year have increased every quarter since the fourth quarter of 2008, continually topping previous record highs.