Returning Risk and Opportunity: Assessing the Reperforming Loan Market

Abstract

Largely a byproduct of financial industry and federal government efforts to aid troubled homeowners with mortgages in the wake of the Great Recession, the reperforming loan (RPL) market is a more pervasive part of the mortgage asset landscape than one might imagine. Loan modification programs greatly expanded the RPL landscape, with rapid increases beginning in 2010 by way of modifications executed under the U.S. Department of the Treasury’s Home Affordable Modification Program (HAMP). Leveraging loan-level mortgage performance and servicer contributed loan modification data from Black Knight Financial Services, the author assesses the importance, size, makeup and performance of the RPL market. In the process, the analysis examines key differentiators in RPL re-default and prepayment risks including RPL seasoning, modification type, post-modification interest rate step-ups and more.