Major trends seen in the July ABX remittance report are that modification rates remain low while prepayments picked up, loss severities remained largely unchanged, and REO buckets are still shrinking, according to a report from Bank of America/Merrill Lynch.
Analysts cited two major reasons for the low loan modification rates. They said that servicers need to ramp up their modification efforts under the Home Affordable Modfication Program (HAMP) by establishing infrastructure and incorporating additional program components, among other things. Any HAMP modification also takes a three-month trial period of success before it’s reported. This is why BofA/Merrill analysts don’t think that any notable HAMP influences on modification rates are going to reflect until the fall.
Most indexes saw modification rates less than 1% for this month. Of the 14 servicers reporting modification rates for the 07-2 index, 0.72% of those loans were modified during July, which compares to last month’s 1.36%.
Prepayment speeds, meanwhile, picked up to regain most of the ground lost in June.BofA/Merrill cited the negative curtailments on speeds that were caused by capital curtailments resulting from modifications. This type of curtailment is still keeping voluntary CPRs lower by anywhere from a half a point to a point, with some transactions even printing negative CPRs.
REO buckets continue to shrink, with roll rates from delinquency and foreclosure into REO remaining slow. This trend, according to analysts, could continue in the coming months given the updated HAMP guidance released by the Obama administration recently. The new rules called for servicers not to intiate foreclosures until a borrower has been evaluated for modification.