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44 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T SERVICING THE LATEST Banks Cutting Servicing Staff Levels at High Rates Report shows mortgage employee numbers are nearly half that of 2014's. D epository institutions appear to be reducing mortgage servicing staff at a faster rate than non-bank servicers as portfolio sizes decline and loan perfor - mance improves, according to Fitch Ratings' latest quarterly U.S. RMBS Servicer Handbook. This installment of the Servicer Handbook (the sixth that Fitch has published) contains data on key indicators through Q2 of 2016 that, when taken together, can give insight into the overall health of the mortgage market. The glaring statistic associated with the report is that banks have reduced their mortgage servicing staff by nearly half—on average—in the past two years. Two years ago, the average depository institution employed approximately 8,000 employees devoted to mortgage servicing. That number has dipped down to just north of 4,000. In contrast, the report says that non-bank servicers do not appear to be in any hurry to reduce staffing levels; the number of servicing employees at these institutions has remained fairly constant at approximately 2,000 employees. Fitch attributes the steadiness in staffing levels to the focus these non-bank institutions are putting on growing their servic - ing portfolios. Further, historically speaking, the company argues that the need for more robust staffing levels is also buoyed by the requirement that non-bank customers have for more frequent interaction. "In addition to lower mort - gage delinquencies, high-credit quality portfolio additions mostly brought on by origination activity are also contributing to reduced staff among bank servicers," the ratings agency said while previewing the release. "In fact, bank servicers now manage more than twice as many mortgage loans per employee compared to non-bank servicers, a comparison not likely to change to any great degree anytime soon." The handbook also dives into the difference in loss mitigation strategies between the two types of servicing institutions First-Lien Mortgages Get an A+ OCC report shows first-liens up for Q2, while foreclosures drop 17 percent. P erformance of first-lien mortgages improved during the second quarter of 2016 compared with a year earlier, according to the Office of the Comptroller of the Currency's (OCC) Mortgage Metrics Report. The overall performance of mortgages remained relatively unchanged from the previous quarter but improved from a year earlier. The percentage of mortgages that were current and performing at the end of the second quarter of 2016 was 94.7 percent, compared with 93.8 percent a year earlier. The first-lien mortgages included in the OCC's quarterly report comprise 37 percent of all residential mortgages outstanding in the United States, or about 20.7 million loans totaling $3.6 trillion in principal balances as of June 30, 2016. The OCC broke down this data further to show that servicers initiated 48,732 new foreclosures in the second quarter of 2016. This was a decrease of 17.3 percent from the previous quarter and 31.1 percent from a year earlier. Additionally, home forfeiture actions, such as completed foreclosure sales, short sales, and deed-in-lieu-of-foreclosure actions, decreased 29.0 percent from a year earlier, to 33,344. Servicers were also reported to have completed 34,604 modifications during the second quarter of 2016. Among the 34,604 modifications completed during the quarter, 30,179, or 87.2 percent, reduced the loan's pre- modification monthly payment. Broken down even further, of these 34,604 modifications, 94.2 percent were "combination modifications", or modifications that included multiple actions affecting affordability and sustainability of the loan, such as an interest rate reduction and a term extension. Among the 32,592 combination modifications completed during the quarter, 93.9 percent included capitalization of delinquent interest and fees, 81.8 percent included an interest rate reduction or freeze, 87.6 percent included a term extension, 7.5 percent had principal reduced, and 11.9 percent had principal deferred. An additional 1,855 loan modifications received only a single action. The fourth quarter of 2015 is the first quarter for which all loans modified during the quarter could have aged at least six months by June 30, 2016. Among modifications that were completed during the fourth quarter of 2015, servicers reported that 4,404 were 60 or more days past due or in the process of foreclosure at the end of the month that they became six months old.