Bank mortgage servicers suffered bigger loan losses in three high foreclosure states than their nonbank counterparts, a Moody's Investors Service report suggests.
The study compared loss severities in private-label subprime mortgage-backed securities in Florida, New York and New Jersey over the last year and found that banks bore a higher share of loan-related costs than nonbank servicers. Those three states account for 42% of the nation's subprime securitized mortgages currently in default.
For instance, banks absorbed a 95% average loss severities ratio in Florida, compared to 81% for nonbanks.
Moody's speculated that banks faced higher loan-related costs — including loan advances, attorney fees, tax and insurance costs, and property maintenance expenditures — because of the foreclosure timelines imposed on them by regulators.
"The additional time needed to process foreclosures led banks' foreclosure inventories to grow, while nonbank servicers did not initially face the same scrutiny, keeping their inventories smaller and their foreclosure timelines shorter," said William Fricke, Moody's vice president and senior credit officer, in a Monday news release.
Again in Florida, banks faced an average 1,077-day delay between foreclosure referrals and property liquidation — nearly double the lag of 571 days experienced by nonbanks.
Nonbank servicers will face longer foreclosure timelines, too, as a result of the National Mortgage Servicing Standards released by the Consumer Financial Protection Bureau in 2012.
Moody's nonetheless predicts that banks, still hobbled with ongoing foreclosures, will retain their loan loss handicap with respect to nonbanks through 2017.
