The longer mortgage servicers take to work through loss mitigation strategies, the longer securitized loans remain within delinquency buckets. The back-loading of defaults draws out liquidation timelines, impacting the expected losses to senior tranches of residential mortgage-backed securities (RMBS), according to Toronto-based credit rating agency DBRS. And in some cases, this raises the occurrence of write-downs by one-third, or 33%. Distressed loans move from 30 to 60 to 90-days delinquent and then follow the foreclosure timeline set forth in the appropriate state before entering REO status. Following this process, loans are liquidated from the RMBS trust. “Currently however, due to forbearance plans, loan modifications and foreclosure moratoriums, loans have remained within a pre-foreclosure stage of delinquency for longer than one month,” DBRS said. “As a result, recent performance has varied depending on asset class and servicer, but in most instances nonperforming loans have remained in the 90+ day delinquency bucket for an average of three to four months before moving to foreclosure.” DBRS ran cash flow stress scenarios to gauge the difference in potential increased write-downs to senior tranches due to slower liquidation rates and a more back-loaded default timing curve. In transactions where senior tranches pay principal sequentially and switch to pro-rata pay when subordinate tranches are written down, DBRS found that senior tranches experienced up to 33% more write-downs, compared with the opposite scenario of higher current liquidation rates and front-loaded defaults. As an example, DBRS evaluated a senior tranche from a 2007 vintage prime transaction currently locked out of principal cash flows and bearing more than 7.5% credit enhancement for the senior tranche. Given the current delinquency pipeline, for example, DBRS expects approximately 40% of the collateral to default over the remaining life of the transaction. When analyzing the cash flows for similar prepayment, severity, and interest rate stresses, write-downs with a front-loaded default timing curve are approximately 30%. Expected write-downs with a back-loaded default timing curve exceed 40%. Write to Diana Golobay.