Fitch: Borrower Claims Nonexistent 2 Years after Ability-to-Repay Rule

NEW YORK--(BUSINESS WIRE)-- Major U.S. residential mortgage servicers have yet to see any borrower claims over two years after the 'Ability to Repay' (ATR) rule was introduced, according to Fitch Ratings. That, however, could change over time with certain non-QM loans becoming more commonplace.

The lack of borrower claims to date is not unexpected. Most loans (including all GSE-eligible loans) meet the definition of a Qualified Mortgage (QM) and receive safe harbor protection from the ATR rule. In the non-agency sector, few non-QM loans have been securitized to date. Of the more than 10,000 loans included in Fitch-rated newly originated mortgage pools since the start of 2014, only 14 have been classified as non-QM and are thus vulnerable to ATR claims.

Of the small fraction of loans not eligible for safe harbor, the combination of tight underwriting and a supportive economic environment has kept default rates low. In the newly originated Fitch-rated mortgage pools issued since the start of 2014, only three loans are currently more than 60 days delinquent (none non-QM). Anecdotally, Fitch has been told default rates on non-QM loans that have not been securitized have been very low as well.

Because Fitch expects ATR claims to generally only occur after a default, lower credit quality or non-appendix Q non-QM loans having a higher default risk may have a higher probability of a successful claim. Fitch is likely to apply increased loss expectations for these loans.

Non-QM origination volume for these products, while still limited today, appears to be growing and could become more common in the future. Fitch updated its Non- QM criteria last month for analyzing the claim likelihood for loans with these risk characteristics.

The ATR rule came into effect for applications on Jan. 10, 2014 to provide borrowers with greater protection from harmful lending practices. Under ATR, mortgage lenders must make a reasonable effort to determine if a borrower has the ability to repay the mortgage before the loan is made. ATR mandates a repayment analysis for closed-end mortgage loans and prohibits certain loan terms and conditions.

Fitch will continue to monitor loan performance and servicer reporting for evidence of the use of ATR as foreclosure defense.

Additional information is available at 'www.fitchratings.com'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160418005974/en/

Fitch Ratings
Roelof Slump
Managing Director
+1-212-908-0705
Fitch Ratings, Inc., 33 Whitehall Street, New York, NY, 10004
or
Thomas Crowe
Senior Director
+1-212-908-0227
or
Media Relations:
Sandro Scenga, +1-212-908-0278
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Guelph Initiative Questions Whether OHIP Should Cover Psychotherapy
• SaunaCloud Founder Christopher Kiggins Explains Why Informed Customers Make Better Buyers in New Fast Company Article
• Ibogaine by David Dardashti Proposes Medical Off-Ramp for Displaced Kratom Users Amid Global Bans, Urges Expansion of Right to Try Policy