Mailing Errors Cause Problems for $347M Pool of Home Loans

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NEW YORK (TheStreet) - Fitch Ratings has found that the biggest surge in delinquencies for any pool of U.S. mortgages since the financial crisis, a 3.37% delinquency rate on the Sequoia 2014-1 RMBS, was a result of widespread mailing errors and not homeowners falling behind on their payments.

As it turns out, only one homeowner of the 121 delinquent borrowers is 60-days late. Everyone else appears to have simply sent their monthly mortgage payment to the wrong mailing address.

Fitch's assessment of the Sequoia 2014-1 RMBS deal provides insight into the various ways in which bureaucratic errors can disrupt the smooth functioning of the mortgage finance system. And that's even before homeowners fall behind on their mortgages, if they actually do so.

The mailing error on the Sequoia RMBS appears to have resulted from a transfer of mortgage loans in the pool from the original servicer, CitiMortgage, to a new servicer, Cenlar FSB. Since most banks no longer hold mortgages they underwrite, private companies have stepped in to service mortgage loans, taking in monthly payments and even negotiating principal reductions in some instances.

However, as the financial crisis showed, homeowners often have a hard time tracing the owner of their mortgage or their servicer if the loan quickly changes hands. In some instances, multiple servicers foreclosed on the same loan during the most recent housing bust.

Even in good times, a homeowner's relationship with their servicer can be complicated, as evidenced by the surge in late payments for the Sequoia RMBS.

"Early delinquency related to servicing transfers in recent RMBS is typically due to the borrower mailing the payment to the wrong address and generally doesn't result in longer term payment issues," Grant Bailey, a Fitch Managing Director said in a statement.

Fitch initially rated the deal on April 2, when it had a total principal balance of over $347 million spread across 429 different jumbo loans. After a review, the ratings agency said on June 9 it found that just one of the 121 delinquent borrowers in the Sequoia pool was more than 60-days late. 

So in spite of the biggest surge in delinquencies of any U.S. RMBS pool, there is no housing crisis for now. It is just a mailing crisis.

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-- Written by Antoine Gara in New York.