Loan Modifications – Who can you trust?
Don’t be misled by anyone quoting Intex’s forbearance numbers. Why? Our research has discovered that for some deals, their forbearance numbers are too high. We thought it was mainly due to Intex not treating HAMP Mods with Principal Reduction Alternatives correctly, but as we kept digging, we discovered other errors. Some of these errors were due to data problems that confused Intex and some errors we cannot explain. We also discovered that Intex, as well as Bloomberg, incorrectly interpreted Nationstar’s recoupment of principal advances as capitalization modifications. For many of the deals where servicing had been transferred from BAC to Nationstar, the percentage of modifications outstanding are overstated.
Intex failed to consider that some forbearance is eligible for forgiveness over time. The U.S. Treasury’s Making Home Affordable program encourages servicers to offer a Principal Reduction Alternative (PRA), which is initially treated as non-interest bearing principal forbearance but can be forgiven over time if the borrower remains in good standing. As investors treat forbearance as potential future cash into their deals, it is incorrect to include forbearance that is likely to be forgiven. Unfortunately, the only valid source for this information is the loan level data provided by the U.S. Treasury, and without valid loan numbers, it is a challenge for some to use. Another secondary source is Ocwen’s REALPortal database, which contains a field that tracks outstanding forbearance, updated whenever a portion is forgiven. When we combined the Ocwen data with the Treasury’s MHA data, we obtained the best picture of outstanding forbearance possible, and using that data, we then estimated how over-stated Intex’s forbearance numbers might be. Although US Bank has an impressive 39 modification fields on their loan level layout, they also failed to capture this important feature and thereby over-stated their forbearance numbers too.
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