LPS’ Herb Blecher On Mod Performance, Cure Rates And Seasonal Spikes

[b]PERSON OF THE WEEK[/b][/u][/i]:[b] Lender Processing Services Inc.'s May 2010 Mortgage Monitor Report,[/b] released this week, shows that delinquencies are increasing and deterioration ratios are worsening, as seasonal improvements observed in February and March have tapered off. This week, MortgageOrb circled up with Herb Blecher, vice president of LPS Applied Analytics, to get his thoughts on what LPS' data can tell us about current mortgage performance. [b][i]On the quality of recent-vintage modifications:[/i][/b] LPS aggregates modification data for the Office of the Thrift Supervision (OTS) and the Office of the Comptroller of the Currency (OCC), which then publish the data in their quarterly Mortgage Metrics report. The latest OCC/OTS report suggested that modifications' sustainability is improving. ‘It's dramatically better, what we're seeing overall,’ says Blecher. ‘Looking at the fourth-quarter 2009 mods three months after the modification, 5.5 percent had hit that 90+ day delinquency category. That's versus first-quarter 2009, when [the 90+ rate] was about 20 percent, so there's been marked improvement across the board as far as the quality of modifications. ‘That said, [it] looks like a greater than a third of those will end up in some stage of delinquency. But it's far improved from where we were before.’ [b][i]Observations on cure rates:[/i][/b] February and March ‘looked like an extreme seasonal period where we had a lot more cures than we usually do,’ Blecher says. ‘When we break out the number of cures, overall, February and March period were two of the biggest months we've seen as far as cure rates, but we also know that HAMP was starting to begin its conversion campaign. When we break it out by the status of the loans curing, you can really see the effects of HAMP.’ Modification numbers for loans six or more months delinquent – a category Blecher says is dominated by HAMP – jumped in the early part of this year, as compared to last. And unlike self cures, to which first- and second-month cures are usually attributed (‘There's not lot of modification activity taking place in that 30- to 60-day category,’ says Blecher), modifications performed earlier this year for severely delinquent loans appear to be sustaining. [b][i]On seasonal factors that may help explain February and March activity:[/i] [/b] Blecher has heard many theories on why loan performance improves during the early part of the year. For some consumers, the new year is a time to recommit to good, fiscal responsibility. ‘There's just that propensity to do so,’ Blecher says, adding, ‘And there are also tax returns.’ The impact of tax returns is always apparent in cure rates, he says. ‘It's really every year; just the magnitude of what we saw this year was a lot more than what we see traditionally over the course of that seasonal trend,’ he explains. ‘It was an anomaly that cure rates went as high as they did, and it does not appear that it was sustained. It's not an anomaly that, over February and March, you get these spikes in self cures.’ [b][i]Roll rates and newly delinquent loans:[/i][/b] LPS' May report shows that the levels of new 30-day delinquencies have reverted back to levels observed in 2009. Blecher notes that current-to-30 roll rate includes modified loans that have redefaulted as well as loans that default following any number of artificial cures. ‘But once you get into 60, the probability of default is going to shoot up quite a bit,’ he says. ‘When we look at loans rolling into 60-day status, those are also starting to pick up a little bit, and overall, we expect them to come back to where they were commensurate with the 30s.’ For its May report, LPS Applied Analytics went one step further, analyzing newly delinquent 60-day loans and segmenting out those loans that have never been delinquent before. ‘When we started to look at it that way, we did start to see a little bit of an improving trend,’ Blecher says. ‘We're still at pretty elevated numbers, but we have come down from where we were in 2009. As opposed to factoring in the redefaults, you're just going to come back to that 2009 level.’ [b][i]On liquidation timelines:[/i][/b] May's report also shows that the average number of days for a loan to move from 30-days delinquent to a foreclosure sale continues to increase, and is now at an all-time high of 449 days. ‘It just hasn't gone down,’ Blecher says. ‘We started to seeâ�¦anomalies where delinquencies have dropped off and haven't come back. We're at least starting to see seasonal trends [on the delinquency side] where there weren't seasonal trends before. On the performing side, we're at these ridiculously high rates of delinquencies and then foreclosures. But you're starting to see what could be interpreted as normal trends in that regard. ‘But the time that loans are sitting out there – that hasn't turned yet,’ he adds. ‘At some point, I would expect we start to see foreclosure sales start to pick upâ�¦.That spigot's going to open, and at some point, you'd expect the timelines to taper off – but we're not seeing that yet. But we do have the precursor to it, which is that foreclosure sales are starting to increase