Ratings Agencies

Fitch Downgrades Servicers on "Slow" Response to Foreclosure Crisis

Posted on Thursday, June 30, 2011

Fitch has downgraded the ratings of several U.S. residential mortgage servicers.
The agency said its reasoning for the downgrade stems from the burden that comes with managing delinquent mortgages in an environment of heightened regulatory scrutiny.
Fitch also cited what it described as the servicers’ “slower than expected” response to the foreclosure crisis and delays in implementing process changes.
The New York-based ratings agency notes that the largest bank-related mortgage servicers are most acutely impacted by the increasing operational risks stemming from current market and regulatory conditions.
As a result, Fitch has downgraded the servicer ratings of Bank of America, Chase, CitiMortgage, and Wells Fargo by one to two notches.
In addition, the operational risk ratings of MetLife, PNC, and Suntrust were negatively affected but to a somewhat lesser degree.
Fitch says it will be completing its full annual review of all rated servicers later this year, which could result in additional downgrades.
The agency had already given a ‘negative outlook’ to the entire U.S. residential mortgage servicer sector.
This move was initially based on increased concerns surrounding procedural defects in the judicial foreclosure process.
Since then, Fitch says other process and risk management concerns have continued to arise, which included bank regulator’s consent orders issued to several of the largest servicing companies in April.
Fitch says the full extent of concerns arising from affidavit and procedural issues uncovered last fall are “far from resolved.”
The agency said it “expects that the additional scrutiny from a wide range of interested parties, as well as the potential new regulation and heightened risk from litigation, will result in continued reluctance to proceed with foreclosure.”
According to Fitch, this scenario is likely even if other loss mitigation efforts have been exhausted, which will further extend the overall time to resolve many of the loans and increase the cost and market value loss for these properties, as well as the loss severity to investors.
By Carrie Bay DS NEWS

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