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With a recession looming, mortgage servicers have not stopped working with struggling homeowners in the post-COVID-19 era to avoid defaults where possible. However, as post-moratorium data begins to flow in, Fitch Ratings reports that new REO inventory — properties in the 1-179 day category — have increased by 14.5%, reflecting the uptick in active foreclosure filings in 4Q22.

“While loan portfolio delinquencies for Fitch-rated bank and non-bank servicers were stable for the third consecutive quarter, the impact of four consecutive quarters of new foreclosure filings post-moratoria is now being felt in new REO volume,” said Fitch Director Richard Koch. 

Bankruptcy and foreclosure filings and 60-90+ day delinquencies showed no significant change quarter over quarter for bank servicers, while non-bank servicers reported a 1% increase in new foreclosure filings. 

On the topic of loan modifications, banks and non-bank servicers reported a small decrease in loan mods quarter over quarter to 31% from 35% and 17% from 20%, respectively. Active forbearance plans for banks and non-banks reflected an increase quarter over quarter to 37% from 35% and 42% from 40%, respectively. 

“The increase in forbearance applications may be attributable to the CARES Act extension through 1Q23,” Fitch said. “Other exit strategies, such as short sales, deferments and deed-in-lieu of foreclosure account for 29% of monthly loss mitigation workout volume for non-bank servicers, an increase of 7% from the previous quarter while bank servicers reported it unchanged at 2%.” 

Among other data reported by Fitch, bank servicers reported a decrease in full-time employees for the third quarter with an average reduction of 10.5% from last quarter while non-bank servicers upstaffed by about 5% on average from the previous quarter. 

Click here to view Fitch’s report
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