DBRS is confident that despite a slow start to 2015, the year will be a solid one for home price recovery and a decline in mortgage delinquencies.
“DBRS believes that 2015 will be a year of further recovery as home prices continue to rebound,” said Kathleen Tillwitz, Managing Director of Operational Risk at DBRS, in a client note.
“Delinquency trends are expected to further decline as successful modification plans continue and foreclosure rates stay at their lowest levels in years. Short sales will remain a common loss mitigation practice; however, strict credit underwriting standards will continue to make finding borrowers that are approved for short sales more difficult,” Tillwitz said.
Stringent underwriting guidelines will continue to make it more difficult for borrowers with less than pristine credit and a substantial amount of reserves to obtain a mortgage in 2015.
“Even though DBRS has seen a few lenders implementing non-QM programs that allow for back-end ratios as high as 50% and FICO scores as low as 600, DBRS expects that larger lenders, who are still recovering from the massive fines they had to pay for making subprime loans, will not be originating anything but QM loans in 2015,” Tillwitz said. “Therefore, DBRS expects the availability of credit to continue to be constrained in 2015 for borrowers with blemished credit, resulting in another year of low organic growth for servicers.”
She added that the industry will see continued efforts by the Consumer Financial Protection Bureau to provide additional changes to ensure servicers are in compliance with the Mortgage Servicing Rules.
“DBRS views favorably the CFPB’s latest proposal for tighter controls, particularly as they relate to loss mitigation time frames during servicing transfer events, and believes that many consumer complaints will be eliminated as a result of the new rule,” Tillwitz said.