The mortgage servicing industry should brace itself for a continued wave of redefaults on modified loans, according to Diane Pendley, managing director at Fitch Ratings.

Speaking at SourceMedia's 4th Annual Servicing Conference in Dallas, Pendley warned residential servicers that the housing crisis will continue and mortgage bankers should dedicate themselves to mitigating losses to stop the financial "bleeding" caused by loan defaults.

While Fitch is seeing an increase in modifications, redefaults are continuing. The rating agency is forecasting that an additional 10% to 12% of modified loans will redefault.

While borrowers who make decreased payments under Home Affordable Modification Program will be able to stay in their homes, unemployment will continue to create stress on delinquencies, said Bryan Bolton, senior vice president of loss mitigation for CitiMortgage.

One of the main drivers of delinquencies is unemployment, speakers at the conference agreed. Amherst Securities is seeing rising default rates in borrowers with negative equity.

Lack of equity is a major problem especially on Alt-A and payment-option ARMs, said Robert Hunter, a vice president at Amherst Securities.

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