Mortgages originated from state housing financing agency (SHFA) bond proceeds continue to broadly outperform conventional mortgage loans in delinquencies and foreclosures, according to a Fitch Ratings report.
"SHFAs mitigate loan performance risk through their long-standing practices of prudent underwriting, full documentation and verification policies, homebuyer education for mortgage readiness, credit counseling and, in some cases, offering job loss protection insurance," said
"SHFAs use counseling to advance their goal of creating sustainable homeownership situations that contribute to better SHFA loan performance. In some cases, the counseling may prevent potential homebuyers from entering into a homeownership situation that they cannot financially handle."
Some SHFAs offer loan modifications for troubled borrowers. Loan performance for these loans post-modification is a 25%-50% redefault rate, which is consistent with the conventional market.
Fitch believes that employment, and underemployment, should be considered as an indicator for projecting future mortgage loan performance. The inverse correlation between employment changes and mortgage delinquencies within a state is higher than the positive correlation between unemployment and mortgage delinquencies.
SHFA loan improvements lag the market because the agencies try to work out distressed loans in accordance with their primary mission to maintain homeownership, which results in portfolios with accumulated delinquent loans.
For more information, a special report titled "What Drives Mortgage Performance?" is available on the Fitch Ratings web site at www.fitchratings.com or by clicking on the link.
Additional information is available at 'www.fitchratings.com'.
Source: Fitch Ratings
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