Unrecognized Principal Forbearance
We've received many requests to produce estimates of outstanding unrecognized principal forbearance. With the oddities associated with loan level servicing data, these estimates can be misleading. Instead, we searched our data sources and found the actual data provided by certain servicers and trustees.
Attached to today’s commentary is an Excel workbook listing the actual outstanding amounts of unrecognized principal forbearance on 3,438 deals (by deal and deal-group). These are non-HAMP modifications where the servicer does NOT report principal forbearance as a loss at the time of modification. We believe this is the actual data on all deals serviced by Ocwen and all deals where Wells Fargo is the trustee. These two data sources comprise 63% of the non-agency RMBS deals outstanding.
The usual suspects show up on the list of deals with the highest amount of unrecognized principal forbearance:
Carrington serviced
Previously serviced by Rescap (currently $1.2 billion in unrecognized principal forbearance)
Other deals of interest with outstanding unrecognized principal forbearance in excess of $10 million include:
OPMAC 2006-1 serviced by Midland Mortgage
BSMF 2006-AR5 and BSMF 2007-AR3 serviced by JPMorgan Chase
The Rescap deals should not be a surprise because back in 2013, Ocwen published the following statement:
“Principal Forbearance is reported, as required, by the applicable pooling and servicing agreement or as required by law or regulation. For legacy Rescap sponsored securitizations, it has been the policy and practice for HAMP modified loans to report principal forbearance as a loss, as directed by the U.S. Treasury’s HAMP Supplemental Directive 10-05. For non-HAMP modified loans, principal forbearance is not reported as a loss when the loan is modified. It is reported as a loss at the time of liquidation to the extent not recovered, in conformance with the applicable pooling and servicing agreements”
Thereby, Ocwen left the unrecognized forbearances in former Rescap transactions untouched.
We are surprised to discover that Ocwen appears to have adapted this policy on certain Rescap deals (see Tables #2 and #3), which is contrary to Ocwen’s policy on how they handle their proprietary Non-HAMP modifications. This discovery came directly from the REALPortal data and it is not clear how consistent this is. The Wells Fargo data shows that Carrington is also continuing their practice of not recognizing principal forbearance as a loss at the time of the modification, although we suspect it also may not be consistently applied.
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