More U.S. servicers are likely to take JPMorgan Chase's and GMAC's lead to halt foreclosure proceeding in the face of increased scrutiny over their foreclosure process.
"The word 'Robo-Signer' is being used as describing one who merely signed whatever papers came across their desk and given what we know about the housing mess, I'm sure every single servicer had the same problem," said Jesse Litvak, an MBS trader at Jeffries & Co. "Given the legal risk that these servicers could be putting themselves at by not trying to right the wrong for these borrowers – while GMAC and JP are the only two that have come out so far – I would expect all the big boys to weigh in with similar actions. "
Citigroup, Wells Fargo and Bank of America's Countrywide could be among the next servicers to take similar steps in reviewing their respective foreclosure proceedings.
Fitch Ratings said that weaknesses in the foreclosure processes, controls and procedures of certain RMBS servicers could lead to servicer rating downgrades by the rating agency.
The stall in the foreclosure process among U.S. servicers may also lead to increased RMBS loss severities but with high loss severities already projected on defaulted loans in these states it should limit the initial magnitude of any negative rating actions for outstanding RMBS with heavy exposure to affected states, explained Fitch.
Litvak believes that the extended foreclosure timeline might slightly extend RMBS bonds but the problem is likely to be addressed promptly, limiting any serious extension risks.
"Let's assume that it takes 6 months to a year to resolve all these issues; I still think RMBS is one of the cheaper fixed income asset classes in the room, and any dips still should be bought," he said. "Actual performance across RMBS this last month (Sept remittance) was solid. Severities are leveling off as of now, and CRRs are still healthy enough to justify current pricing.
"In fact, I still think no one is giving any credit to a meaningful refi pop in the short term, so I still got the bull view on even though you will read all these stories about other servicers who had robo-signers at the wheel."