Barclays Capital analysts ranked the largest mortgage servicers on how fast they move loans through the loss-mitigation process and ultimately through modification or foreclosure.
While delinquencies have leveled off in recent months, roughly 6.9 million mortgages are more than 30-days delinquent or in foreclosure as of January, according to Lender Processing Services data. The decisions servicers must make once these loans hit delinquency have increased in both importance and scrutiny, especially when issues arose last year about servicers' foreclosure practices.
BarCap came up with three key decision points, and ranked servicers on the speed at which they acted.
First, is when the borrower initially becomes delinquent. Here, if the borrower cannot immediately cure the loan, the servicer begins to evaluate him or her for either a modification or foreclosure. Most currently start foreclosures and pursue a modification at the same time, a practice known as dual-tracking and one that the 50 state attorneys general are attempting to outlaw.
Servicers such as Ocwen Financial Corp. (OCN: 10.70 +2.20%), Morgan Stanley's (MS: 27.43 -0.07%) Saxon Mortgage Services, and Wells Fargo (WFC: 31.83 +1.50%) currently hold very fast foreclosure and modification rates after 60-days delinquency. Bank of America (BAC: 14.04 +0.43%), JPMorgan Chase (JPM: 45.74 +2.65%) and Carrington are among the slowest, according to BarCap data.
BofA's 60-plus-day delinquency to foreclosure roll rate was 8% to 10% slower than what analysts expected, while Saxon and Ocwen were nearly 10% faster.
The next decision point is the speed at which servicers liquidate a property either through short sale or REO after foreclosure.
The average time a loan spends in this stage is almost twice as long as in the 60-plus-day delinquency bucket. BarCap showed that Ocwen was one of the fastest to liquidate through short sale or REO, along with Saxon and Wells. Again, BofA, JPM and Carrington were among the slowest, though it was noted Carrington's strategy of renting out REO has long slowed down its process.
Finally, BarCap ranked servicers on how fast they advance interest, schedule principal taxes, and insurance on the delinquent loan. All of these costs the servicer recoups once the loan is liquidated or modified, but for REO the servicer will have to bear some maintenance cost. But costs are going up the longer these loans and properties sit in the pipeline, meaning speed is of the essence, according to analysts.
"If the servicer incurs additional legal costs because of the additional scrutiny required by courts on foreclosures, then this could add to the costs, too," BarCap said. "These costs are never apparent, given to the level of reporting provided in remittance reports but any differences in policies across servicers on these issues could lead to severity differences across servicers."
For subprime loans, BofA, Carrington and Ocwen outperformed the rest, while JPMorgan's Washington Mutual, Saxon and Option One were among the slowest.