Deferred Principal Outstanding & Recovery Rates
Three of the major trustees provide loan level deferred balance data. HAMP’s Principal Reduction Alternative (PRA) modifications make tracking the outstanding deferred balance tricky, as the initial PRA Forbearance amount is subject to forgiveness over a 3-year period if the loan performs. Wells Fargo appears to do an excellent job of updating the deferred balance when a forgiveness event occurs. In fact, Wells Fargo tracks the deferred principal subject to forgiveness separately from the deferred principal not subject to forgiveness. Unfortunately, US Bank doesn’t track the deferred balance separately nor does US Bank appear to consistently update the outstanding deferred balance. BNY Mellon seems better at tracking changes in the deferred principal but does not track deferred balance subject to forgiveness separately.
Therefore, our analysis will rely solely on the loan level deferred balance data provided by Wells Fargo CTSLink on 2,063 Non-Agency deals. We hope this analysis will help you better estimate future cash flows coming from deferred principal sitting in many of these trusts.
Wells Fargo CTSLink Deferred Principal Data Fields (starting November 2014)
Ending Scheduled Interest Bearing Balance
Ending Actual Interest Bearing Balance
Ending Scheduled Total Balance
Ending Actual Total Balance
Non-Interest Bearing Deferred Principal Balance
Principal Reduction Alternative Forbearance Balance
Non-Interest Bearing Treatment Method (Loss or NonLoss)
The Analysis: With accurate data on 2,063 deals, we can determine:
the actual amount of deferred outstanding and subject to incented forgiveness.
the deferred principal recovery rates at payoff and liquidation.
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