Moody’s: Low Loan Mod Levels Among Subprime Servicers ‘A Cause for Concern’

Catching up on a news item from last week, Moody’s said in a recent report that subprime loan servicers had only modified roughly 1 percent of all subprime loans facing a reset in recent months — something the rating agency characterized as a “particular concern.”

From the press release:

… the survey found that although some subprime servicers have recently begun to make outbound calls to borrowers slated for interest rate resets in the near future, the majority of large servicers surveyed continue to rely on passive letter-based contact with borrowers instead of more active methods such as phone calls. “The industry’s approach could mean that many borrowers will not be successfully contacted, lowering opportunity for loan modification,” says Moody’s Assistant Vice President, Senior Analyst, Michael Drucker.

“These trends can be a cause for some concern,” said Moody’s Chief Credit Officer, in the Structured Finance Group, Nicolas Weill. “Based on these survey results, the number of future loan modifications by subprime servicers on loans facing reset may be lower than needed to mitigate losses meaningfully. In light of the current trend and the collateral performance further rating downgrades actions on subprime RMBS issued in late 2005 and 2006 could be necessary.”

Moody’s said it surveyed subprime servicers equating to roughly 80 percent of the outstanding subprime mortgage servicing market.

A summary of the survey is available here for Moody’s subscribers.

The news of low modification activity contrasts with Countrywide’s recent press offensive touting its loan mod efforts, which said the Calabasas, Calif.-based lender had modified 17,000 loans this year. Countrywide did not specify what percentage of loan modifications were performed in its subprime portfolio.