Definitions and Methods
Third Quarter 2008
This report uses standardized definitions for three categories of mortgage creditworthiness: prime, Alt-A, and subprime. Using ranges of borrowers' credit scores at the time of origination, the categories are defined as prime—660 and above; Alt-A—620 to 659; and subprime—below 620.
Roughly 14 percent of loans in the data were not accompanied by credit scores and are classified as "other." This group includes a mix of prime, Alt-A, and subprime. In large part, they are the result of acquisitions of portfolios from third parties where scores were not available. Set forth below are additional definitions:
Seriously delinquent loans—All mortgages that are 60 or more days past due and all mortgages held by bankrupt borrowers who are 30 or more days past due. Loan delinquencies are reported using the Mortgage Bankers Association (MBA) convention that a loan is past due when a scheduled payment is unpaid for 30 days or more.
Home retention action—Actions including loan modifications and payment plans5 that mitigate loan loss. Home retention actions allow the borrower to retain ownership/occupancy of the home, while attempting to return the loan to a current and performing status.
Loan modification—Mortgage for which terms of the loan are contractually changed with respect to interest rates or other terms of the loan.
Payment plan—A short- to medium-term change in scheduled terms and payments to return a mortgage to a current and performing status.
Re-default rate—The percentage of modified loans that subsequently become delinquent or enter the foreclosure process. This report measures re-defaults at both 30 and 60 or more days delinquent and in process of foreclosure.
Short sale—Sale of the mortgaged property at a price that nets less than the total amount due on the mortgage. The servicer and borrower negotiate a repayment program, forbearance, and/or forgiveness for any remaining deficiency balance on the mortgage debt to lessen the adverse impact of the debt on the borrower's credit record. A short sale typically has less adverse impact on the borrower than foreclosure.
Deed-in-lieu-of-foreclosure action—The borrower transfers ownership of the property (deed) to the servicer in full satisfaction of the outstanding mortgage debt to lessen the adverse impact of the debt on the borrower's credit record. A deed-in-lieu-of-foreclosure action typically has less adverse impact on the borrower than foreclosure.
Newly initiated foreclosure—Mortgage for which the servicer initiates a formal foreclosure proceeding during the month (e.g., public notice, judicial filing). Many newly initiated foreclosures never result in the loss of the borrower's home, because servicers simultaneously pursue other loss mitigation actions and borrowers may act to return their mortgages to current and performing status.
Foreclosures in process—The number of mortgages for which the service has begun a formal foreclosure proceeding (e.g., public notice, judicial filing) but have not yet completed the process resulting in the loss of the borrower's home. The foreclosure process varies by state and can take from two to 12 months to complete. Many foreclosures in process never result in the loss of the borrower's home, because servicers simultaneously pursue other loss mitigation actions and borrowers may act to return their mortgages to current and performing status.
Completed foreclosure—Ownership of the property is transferred to the servicer or investor and the mortgage debt is extinguished. A completed foreclosure's ultimate result is the loss of the borrower's home.
The statistics and calculated ratios in this report are based on the number of loans rather than on the dollar balance outstanding.
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