Loan modifications have slowed notably and
According to Fitch, short sales among bank servicers as of November 2012 had peaked at 51% compared to 20% two years prior.
Also, short sales executed by nonbank servicers have risen as high as 16% (October 2012) compared to 11% two years earlier.
In a press release, Fitch managing director Diane Pendley attributed the trend in part to overall declines in mortgage delinquencies.
“However, they may also have fallen out of favor since many modified loans have already failed and do not qualify for another modification,” she added.
According to Fitch, the increase in short sales may stem from “efforts to reduce the impact of foreclosure on borrowers who have redefaulted loan modifications.” The company finds redefault percentages are currently as follows after 24 months: 24% for prime credit borrowers, 36% for alternative-A credit borrowers and 42% for subprime credit borrowers.
Fitch also noted that there is a “wide disparity between bank and nonbank servicer practices in numerous areas like loans per employee, use of temporary staffing and perhaps most notably, staffing levels.
“Following a marked increase in late-2010, bank staffing levels have declined with defaulted loans either being resolved or transferred,” according to the report. “At the same time nonbank staffing levels have risen as their portfolios have increased.”
Pendley added, “Increased use of nonbank servicers has been particularly evident on subprime loans due in part to their more aggressive use of loan mods and shorter overall timelines.”
Also in its report on servicing and short-sale trends, Fitch noted that it has found “prime borrowers are more likely to accept a short sale, with 64% of liquidations being sold as short sales.
“Alt-A short sales are not far behind with 53% and 42% for subprime loans.”
