A client note from Moody’s Investors Service says that foreclosure timelines for private-label residential mortgage-backed securities loans backed by properties in California and Nevada, two non-judicial foreclosure states, will remain lengthy over the next year until gradually starting to decline in early 2016.

Analysts with Moody’s cite two main reasons:

  • procedural scrutiny on foreclosures as a result of Homeowner Bill of Rights laws are extending the amount of time that properties are in foreclosure
  • repeat foreclosure filings are keeping servicers occupied with legacy foreclosure issues

Analysts say that the lengthy timelines are credit negative for private-label RMBS because more than 21% of all properties backing seriously delinquent loans are in the two states – 19% in California and 2% in Nevada.

“The number of loans backed by properties in foreclosure in both states will begin to decline as servicers complete the foreclosure process for aged loans and move on to newer cases with fewer loan documentation issues,” Moody’s says. “The improving economy will also help reduce the number of new foreclosure filings. We expect timelines to gradually reach the 400-450 day range in both states, down from 500-530 days in California and 700-750 days in Nevada currently.

“The Nevada timelines will shorten more dramatically because an amendment clarifying a previous onerous state law, which led some servicers to use judicial foreclosures, has spurred servicers to pursue non-judicial foreclosure with legacy private label RMBS loans more often,” they say.

Furthermore, servicers will likely use faster non-judicial process with new foreclosures.