Large portfolios of non-agency RMBS mortgage servicing rights (MSRs) continued to move from banks to nonbank servicers in the third quarter of 2013, according to a new report from Fitch Ratings. Additional large MSR transfers are expected to occur by the end of 2013 as the banks continue to offload defaulted/high-risk loans. These transfers have contributed to many changes in the servicing landscape as nonbank servicers now have higher subprime delinquency rates and use principal forgiveness modifications as a higher percentage of loan modifications than bank servicers.

Residential mortgage servicers continue to be faced with issues regarding the management of delinquency and foreclosure timelines. There continues to be a marked difference between bank and nonbank servicers in the time to resolve delinquent loans, with nonbank servicers showing better performance. However, despite nonbank servicers' better performance in working loans through delinquency, once in foreclosure, there is little difference between the servicer types in time spent in foreclosure for both judicial and nonjudicial states. In both cases, timelines continue to increase due to stricter guidelines and court delays. However, real estate owned (REO) inventories continue to decrease as real estate market conditions improve, enabling servicers to sell REO properties faster.

Starting in January 2014, all servicers will become subject to the servicing guidelines of the Consumer Financial Protection Bureau (CFPB). Fitch believes the servicing standards set by these guidelines will help to define industry best practices. However, servicers may be faced with increased costs as the necessary technology and process enhancements are made to ensure compliance with the guidelines. Furthermore, additional requirements regarding loss mitigation efforts may cause further delays in working loans through delinquency and foreclosure.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: RMBS Servicing Index -- U.S.A. (3Q13)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723469

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