Residential loan modifications will decline in 2012 for the second straight year, while short sales increase, according to a new forecast from Moody's Investor Service.
The credit rating agency says servicers have already reached out to most borrowers that are eligible for a modification.
“Short sales and deeds-in-lieu will pick up as borrowers either do not qualify or re-default on their modifications,” Moody's say in its '2012 Outlook' report on private-label MBS and servicing issues.
The increase in short sales will reduce liquidation timelines and stabilize loss severities, according to the report.
Moody's also sees servicers handing off more defaulted loans to special servicers this year, which it is considers a “credit positive” development for existing and new private-label MBS deals.
“In the face of overwhelming levels of defaulted loans, larger servicers will increasingly transfer loans to special servicers,” the Moody's report says. Special servicers have greater expertise and a more hands-on approach in dealing with non-performing loans.
