CDR rates were relatively flat in July, with only one index posting a decrease of 1.2 points, while loss severities rose by an average of 1.5 points across all indices, according to a recent report by Bank of America Merrill Lynch.
The 06-1 to 07-2 indices showed overall changes of +0.8, -1.2, +0.6, and +.04 points, respectively, bringing rates to 9.9, 11.2, 11.2, and 10.7%. Default rates have been relatively flat since October, which BofA Merrill analysts attributed to the emergence of foreclosure issues. They also believe CDR volatility to be when liquidation volumes are higher.
Ocwen-serviced pools have slightly higher default rates for July, with its pool, as well as those from HomEq Servicing and Saxon Mortgage Services, up an average of 3.2% CDR to 17.9, 13.9, and 10.9% respectively.
On the other hand, Carrington Mortgage Services-serviced default rates fell to 25.6% CDR from 28.1%, but the 6-month average is 23.3% CDR. Countrywide Home Loan Servicing-serviced pools also declined to 6.4% in July, down from 7.4% CDR last month. Analysts believe liquidations remain sluggish as a result of “continued uncertainty related to servicing procedures”.
Voluntary prepays were reported as being “non-existent” at an average of 1.0% CDR across all indices.
Following a 1.7 point decline last month, loss severities increased in July by an average of 1.5 points. The 06-1 to 07-2 indices rose 1.5, 0.9, 1.1, and 2.4 points, respectively, to reach values of 77.3, 85.9, 92.7, and 90.1% for the month. The report said this figure includes losses associated with loan modifications that result from forbearance recognition, principal forgiveness, and/or the recovery of servicer advances.
BofA Merrill analysts said that the month-to-month severity figures are “difficult to read too much into” due to the low CDR values. However, they said that severities have continued to increase since mid-2010 as a result of increased distressed timelines and home price weakness.
Modification rates were down 0.15 percentage points, bringing the monthly modification rate to an average of 0.87% from 1.02%. This rate increased 0.6 percentage points last month. Analysts attributed the slow modification activity to exhaustion of borrower eligibility and existence of credit burnout, but believe the downward trend to be “healthy” because it indicates the decreasing amounts of distressed borrowers.
BofA Merrill analysts warned that the risk of increased modifications persists as acquisition deals continue resulting from the conclusion of the Attorneys General investigation into servicer activity. They singled out Ocwen as a particularly active buyer of servicing rights.