An increase in late-stage arrears for prime Dutch RMBS is causing a build-up in potential foreclosure stock. However, a stall in the foreclosure process for these transactions will continue to pressure their collateral performance, according to a Fitch Ratings report.
Dutch RMBS loans' performance has experienced an increase in the proportion of loans in arrears, particularly late-stage arrears, the report said. An increasing proportion of transactions are now reporting three-month plus arrears in excess of 1%.
"Increased arrears are only partly a result of deterioration in the fundamental credit quality of Dutch residential mortgages," said Ibrahim Kamara, analyst in Fitch's European RMBS team. "They also reflect a reluctance of servicers to sell properties at auction in current stagnant market conditions. Certain transactions have not reported a single completed foreclosure for quarters at a time."
The report also highlighted that the majority of these loans in arrears are also in negative equity.
"Reported loss severities are typically higher on loans that have been foreclosed upon through a court auction process," analysts said in the report. "However, the low level of activity in the residential market means that consensual sales have become more difficult to complete. These factors combine to not only reduce the incentive for servicers to complete foreclosures through forced sales, but also to reduce the volume of consensual sales."