Fitch: 15% of MBS Loans Will Be Modified

Over the next 12 months, 15% of loans pooled into residential mortgage-backed securities between 2005 and 2007 will be modified, Fitch Ratings predicts. The projection is based on the number of loans that banks have modified from their own portfolios, the rating agency said. Fitch said the 14 largest banks and thrifts modified 187,000 mortgages in the first half of 2008. "There will be increases in securitized loan modifications if only to ensure that borrowers in a securitized pool are being treated equally to borrowers whose mortgages are held by a bank, as well as to fulfill the servicers' duties to maximize returns to the trust," said Huxley Somerville, group managing director for RMBS at Fitch. Because modifications to avert foreclosure can benefit the investor as well as the borrower, Fitch said it plans to "confirm current ratings when proposed changes in the deal documents" allow servicers broader authority to modify loans.