Nationstar Mortgage LLC’s revised loss reporting related to principal forbearance loan modifications will have what Fitch calls “marginal rating implications” on some residential mortgage-backed securities that already have very low ratings and will result in an estimated $1 billion RMBS loss.
“Fitch expects the impact to be concentrated in classes rated CCsf or below and currently does not anticipate significant rating changes as a result of the revision,” the ratings company said in a report Tuesday.
Fitch said the move in total “will result in approximately $1 billion in losses for RMBS collateralized with loans they service, with the revision likely to occur in the July distribution.”
More specifically, Fitch said the revised losses will affect loans acquired in 2012 from Aurora Bank FSB and its Aurora Loan Services subsidiary.
“Nationstar has indicated it currently does not anticipate future revisions on loans recently acquired from Bank of America, or on any loans unrelated to the Aurora acquisition,” according to Fitch.
Fitch noted that a
The Nationstar revised loss amount is “roughly 1.5% of the total balance of the mortgage pools affected,” according to Fitch, noting that “principal forbearance modification activity is generally highest among poor performing mortgage pools with large percentages of underwater borrowers.”
Fitch also noted, “Historically there has been inconsistency in the servicer reporting of forbearance amounts. Pooling and servicing agreements prior to 2010 generally do not explicitly address whether servicers are to report the forborne principal as a loss.”
The Treasury provided guidance in line with the HAMP program that year, directing servicers “to report HAMP forbearance amounts as losses and trustees to allocate forborne principal as realized losses at the time of modification,” Fitch noted, adding that there nevertheless remains inconsistency in non-HAMP mods and mods done before the guidance was issued.
