Fitch: U. S. Mortgage Loan Mods Double for Ocwen Post-Streamline HAMP
Ocwen expects that the increased cash flow from the successful modifications will outweigh the costs of unsuccessful modifications. Unsuccessful modifications will have longer liquidation resolution timelines and likely higher loss severities than they would have had they not been included in the program.
Effective Jan. 1, 2016, the Streamline HAMP program targets borrowers who meet basic HAMP eligibility criteria and, among others, those who have not completed a HAMP application by the time their loan is 90 days delinquent. The recent spike in modifications is the result of converting borrowers to permanent modification status that were solicited for the Streamline HAMP program beginning in January and have now successfully completed the three-month trial period.
Historically, Ocwen's loan modification activity has been higher than the industry average for subprime and Alt-A mortgage loans in private label securitizations. Additionally, other servicers have shown a more modest increase in modification activity related to the Streamline HAMP program.
The Streamline HAMP program is in accordance with Supplemental Directive 15-06 issued by the U. S. Department of the Treasury (Treasury) on July 1, 2015 Making Home Affordable Program - Streamlined Modification Process. Supplemental Directive 15-06 does not apply to mortgage loans that are owned, securitized or guaranteed by Fannie Mae or Freddie Mac, or insured or guaranteed by the Veterans Administration, the Department of Agriculture's Rural Housing Service or the Federal Housing Administration.
The guidance set forth in Supplemental Directive 15-06 went into effect Jan. 1, and allows participating servicers to offer eligible borrowers a modification that will:
--Capitalize accrued interest and escrow advances;
--Adjust the interest rate to a fixed amount determined according to a formula provided by the Treasury;
--Extend and re-amortize the loan to a 480-month term; and
--If necessary, forbear or forgive a portion of the principal balance to bring the post-modification mark-to-market LTV ratio to, or close to, 115%.
The maximum forbearance amount would be 30% of the principal balance including the capitalized amounts.
Borrowers who have previously received a permanent HAMP modification may be eligible for a new Streamline HAMP modification. The Streamline HAMP program includes both owner-occupied and rental properties. Similar to the HAMP Tier I and Tier II programs, eligible borrowers must submit an initial package on or before Dec. 31, 2016 to be evaluated for the Streamline HAMP program, and the effective date of the modification must be on or before Dec. 1, 2017.
Fitch will continue to monitor the effectiveness of Ocwen and other servicers of challenged mortgage loans in both government and proprietary modification programs. In February of this year, Fitch upgraded Ocwen's U. S. residential mortgage servicer ratings to the '3-' level, and revised the Rating Outlook to Stable from Positive based on improved governance and operational controls, refocus on private label securities (PLS) servicing, and highly integrated technology environment. The servicer ratings continue to reflect Ocwen's high concentration of off-shore servicing operations.