Coauthored by Stella Lu
Fannie Mae is now following suit in the appraisal-free arena by allowing property waiver inspections on some purchase loans. Oakleaf Group analyzed the mortgage data representing the underlying collateral backing the Freddie Mac STACR credit risk transfer transactions. This data represents 28,305,404 loans originated between from 2012 and 2020.[1]
According to freddiemac.com the Credit Risk Transfer (CRT) program has transferred $9.1 billion of credit risk on $231 billion of single-family mortgages.[2] On March 18, 2020 Freddie Mac announced the suspension of single-family foreclosure and evictions and confirmed and expanded forbearance and modifications programs.[3] The forbearance plans provide borrowers with payment relief up to 12 months. According to Freddie Mas’s COVID-19 CRT FAQs document the delinquency status for loans in forbearance will continue to advance. This advance does not result in a modification loss or principal write-down. It could cause a lockout of principal based on the delinquency test.[4]
Due to the limited duration of the COVID-19 disruption so far, our analysis relates to the 30 and 60+ day past due rates on the CRT loans. Below is a chart showing 30 day and 60+ day delinquency rates for the top servicers participating on the STACR transactions.
30 day past due Wells Fargo delinquencies in April (7.20%) were 2 times higher than their peers’ average (3.50%) and in May (4.51%) they were 1.8 times higher than peers’ average (2.51%). To gain a better understanding of this disparity, we drilled down to the state by state composition and average loan balance by state. Below is a state level comparison of the loans serviced by US Bank (USB), JP Morgan/Chase (JPM), New Residential (NewRez) and Wells Fargo (WF).
60+ Day past due Wells Fargo delinquencies in May (6.45%) were 2.1 times higher than their peers’ average (3.05%).
Wells Fargo delinquencies are to be higher than their peers across essentially all states. Below is a summary of the top three servicers (JPM/NewRez/USB) versus Wells Fargo based on the May 2020 data.
The Roll Rate Performance MoM for the Top Servicers shows a similar trend:
While the 30-day delinquency rate had been stable across all servicers, a slight uptick was experienced in March, followed by a significant uptick in April driven by COVID related delinquencies. Similar performance was experienced by the 60+ day delinquency rate. However, the 60+ % increased exponentially from April to May – due to April’s 30 day delinquencies rolling into the 60+ day bucket.
Wells Fargo and JP Morgan Chase experienced the greatest percentage increase, Wells Fargo 60+ % was 1.8 to 2.4 times the levels experienced by the other top services. What is the driver behind Wells Fargo higher than their peer’s delinquency performance? To confirm that loan size was not a driver, we examined the average unpaid principal balance for the top servicers and did not find major variances across the top servicers.
JP Morgan Chase | New Residential | ||||
State | April Average UPB | May Average UPB | State | April Average UPB | May Average UPB |
California | $306,774 | $305,253 | California | $320,270 | $320,476 |
Florida | $192,407 | $191,448 | Florida | $206,280 | $205,611 |
Louisiana | $170,849 | $169,481 | Louisiana | $193,465 | $192,028 |
Nevada | $206,454 | $204,963 | Nevada | $217,104 | $215,852 |
New Jersey | $269,335 | $267,776 | New Jersey | $273,408 | $272,303 |
New York | $288,857 | $287,634 | New York | $290,264 | $289,697 |
US Bank | April Average UPB | May Average UPB | Wells Fargo | April Average UPB | May Average UPB |
California | $315,101 | $313,177 | California | $295,441 | $293,381 |
Florida | $207,819 | $206,694 | Florida | $203,906 | $202,560 |
Louisiana | $170,849 | $169,481 | Louisiana | $193,465 | $192,028 |
Nevada | $206,454 | $204,963 | Nevada | $217,104 | $215,852 |
New Jersey | $269,335 | $267,776 | New Jersey | $273,408 | $272,303 |
New York | $288,857 | $287,634 | New York | $290,264 | $289,697 |
According to the RMBS Credit Indices: June 2020 provided by Kroll Bond Rating Agency, the 30+ day delinquency rate across the high and low LTV CRT indices was between 5%-6%, and the 60+ day delinquency rate was between 1.80% to 2.10% (these figures include both Freddie and Fannie Mae CRT mortgages).
Our analysis provided a few answers – but also prompted many more questions. One thing that’s for certain is, due to the wide variance in servicing performance, CRT Investors would do well to closely monitor the performance of the collateral underlying their positions.
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[1] All data retrieved on June 23, 2020 from Freddie Mac’s website.
[2] “Freddie Mac Credit Protects $231 Billion of Single-Family Mortgages in 2019.” Freddie Mac, 18 February, 2020.
[3] “Freddie Mac Announces Enhanced Relief for Borrowers Impacted by COVID-19.” Freddie Mac, 18 March, 2020.
[4] Covid-19 CRT FAQs. Freddie Mac, 2020.