Large institutions are starting to reconsider their obligation to make servicing advances to MBS investors as it takes longer and longer to foreclose and liquidate residential properties.

It currently takes over two years to foreclose and sell the REO and it is getting longer due to the backup in foreclose processing, according to Howard Kaplan, a partner at Deloitte & Touche.

Meanwhile, servicers are advancing principal and interest payments to investors as well as paying for property taxes and insurance on the vacant properties and maintenance costs. 

"Servicers are actually starting to think about whether they should be advancing P&I," Kaplan said.

Speaking at the American Securitization Forum (ASF) annual meeting on Wednesday, he noted that part of the analysis involves whether the servicer believes they can recover their advances out of the proceeds from the sale of the property. 

"If it takes three years to recover and property values continue to go down — you are going to recover less and your entire analysis changes," Kaplan said.

The Deloitte & Touche partner noted a halt in P&I payment would cause an "uproar" in the markets.

However, servicers are shelling out billions and billions of dollars of advances while the days to foreclose and liquidate continue to rise. 

"It is consuming resources and capital and in many cases the patience of large financial institutions as they work through this," Kaplan said.

The accountant did not name any individual institutions but he noted that large institutions disclose servicing advances in their quarterly filings with the Securities and Exchange Commission.

In its first quarter securities filing, Bank of America said its servicing advances on consumer mortgage loans totaled $24.9 billion. 

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