“IT’S NOT SOMETHING THAT’S TOTALLY UNEXPECTED” – MOODY’S DOWNGRADES BofA SERVICING

In the continuing question of why anyone would want to manage the servicing of mortgage loans in this day and age, Moody’s took the step they had initially warned about in October of last year by downgrading the servicing rating of Bank of America on its prime, subprime and second lien mortgage loans as well as for its special servicer rating.
 

The rating, referred to as SQ or Servicer Quality ratings, has a high score of SQ1 and a bottom of SQ5. BofA’s servicer rating had been at the high category of SQ1. The recent downgrade puts BofA at SQ2. Moody’s SQ review covers at least nine areas of servicing functions, including management, staff experience/training/compensation, loan administration, arrears management, loss mitigation, IT systems/reporting, general quality and guidelines and financial stability. The weighting of these factors depends on whether the rating is for the Servicer as primary, special or master servicer. In the case of BofA, it was as primary servicer.

 

And BofA is not out of the woods yet. Moody’s has stated that BofA remains under review for further downgrade due to their foreclosure process.  Given the complete disarray of the loss mitigation systems, as well as claims that the staff of the servicing shops are overwhelmed and inadequately trained, it is not surprising that BofA expected this downgrade.

                                               

However, as one of the largest servicing portfolios with 13.3 million loans under management (excluding REOs), this little speed bump will not slow down the massive servicing structure. With new management recently put into place, as well as compliance with the recent Consent Order signed by BofA with the OCC and the Federal Reserve, things may start looking up for the servicing group. Whether or not they can make money at this side of the business is another question.  The trick is cost containment while the portfolio continues to be stressed by delinquencies, short sales, foreclosures and  aggressive plaintiff litigants who want homes for free. Infrastructure building, with clear policies and procedures, training and auditing is the only way to clear this up.