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Beware of False Liquidations - your Vol CPR is too low, your CDR is too high and your Severity is wa

What’s the problem?

For voluntary payoffs, some Servicers are passing through to the Trust certain expenses that are not collectible from the borrower, but are collectible from the Trust. Some of these expenses are as low as 4 cents while most are less than $100. These expenses can include certain fees required under the HAMP program that specifically state the borrower is not to be charged along with certain bankruptcy expenses that are also not allowed to be charged to the borrower. There are certainly other fees and expenses that we are not aware of. At payoff or any time after, these expenses appear as a loss to the trust. It is not a lot of money.

However, when the loss is passed through at the exact month of payoff, Wells Fargo, as Securities Administrator, is incorrectly flagging these loans as a Liquidation. Even a 4 cent loss on a Voluntary Payoff turns the loan into a Liquidation. This then causes the Voluntary CPR to be too low, the CDR to be too high and the loss severity to be way too low. We see evidence that in many cases, Bloomberg and Intex generally take the data from the Securities Administrator and reports as supplied. Thereby, investors are relying on incorrect data. Fortunately, Webbs Hill has built logic whereby losses stemming from Current to 60 day delinquent loans have to pass a minimum threshold before being classified as an Involuntary Payoff.

This problem is not isolated to any one Servicer, Master Servicer or Trustee. The common thread among all these loans that are flagged incorrectly is the presence of Wells Fargo as the Securities Administrator (party responsible for making monthly distributions and preparing the related monthly distribution statements).

The best way for us to explain this issue is with examples. Since January 2015, we discovered 676 deals or 2,239 deal remittance combinations affected. The magnitude is even greater, as one wrong remittance affects the 3-month, 6-month and 12-month averages going forward.

To help our clients, we are distributing a spreadsheet which includes:

  1. A list of the deals along with related Remittance dates that have FALSE Liquidations

  2. Webbs Hill’s Dashboard Analytics which contains the correct values for Voluntary CPR, CDR and Loss Severity. You should use these performance statistics to verify that your data source is accurate. If you are relying on bad data, you may want to consider subscribing to our Dashboard.

Call Wells Fargo. They have a lot of data that needs to get redistributed and lots of Remittances that need to get restated. Bloomberg and Intex can fix this with a few lines of code.

Contact us at 203-276-0672 to become a client and access all reports and attachments.

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