Borrowers who have defaulted in the past are generally considered to be a bigger risk than those who have never missed a payment. Yet the early performance of bonds backed by rehabbed residential mortgages is pretty strong.
Of the 12 reperforming RMBS that Fitch Ratings has rated over the past two years, only two have a rate of 60+ delinquencies greater than 5% of their current outstanding principal balance. And only one transaction has a cumulative loss greater than 1% of initial balance. The majority of this loss is attributed to the Home Affordable Modification Program, or HAMP, a government program introduced in 2009. One form of this program forgives part of a loan’s principal over a three-year as period, long as the borrower continues to make timely payments.