Fitch Ratings has placed Litton Loan Servicing LLP's (Litton) U.S. residential and small balance commercial mortgage servicer ratings on Rating Watch Negative:
--Primary servicer rating for Alt-A product 'RPS1';
--Primary servicer rating for subprime product 'RPS1';
--Primary specialty servicer rating for manufactured housing product 'RPS2';
--Primary specialty servicer rating for closed-end second liens product 'RPS1';
--Residential special servicer rating 'RSS1';
--U.S. Small balance commercial primary servicer rating 'SBPS2+';
--U.S. Small balance commercial special servicer rating 'SBSS2+'.
The Rating Watch Negative is based on concerns from the potential sale of Litton Loan Servicing, LLP (Litton), a wholly owned subsidiary of Goldman Sachs Group, Inc. (Goldman), to Ocwen Financial Corp., which was announced on June 6, 2011 and expected to close by year end 2011. Fitch believes the sale to Ocwen is likely to result in material changes to Litton's servicing platform including reductions in senior management and staffing levels, outsourcing of borrower contact including default and collections, and potentially a conversion to a new system of record and default management platform. Fitch anticipates that if the transaction proceeds as expected to closing, the Litton servicer ratings would be either withdrawn or be no higher than those held by Ocwen.
Litton maintains servicing offices in Houston and Dallas, TX and Atlanta, GA. Fitch believes that Litton maintains a superior servicing operation with highly experienced senior and servicing management, strong default management expertise, and robust default servicing systems. Ocwen's U.S. residential primary and special servicer ratings are 'RPS2' and 'RSS2', respectively, which are also being placed on Watch Negative as of June 8, 2011.
As of Dec.. 31, 2010, Ocwen's portfolio was comprised of nearly 468,000 loans with an unpaid principal balance (UPB) of over $71.4 billion, of which 98% are subprime loans. As of Dec. 31, 2010 Litton serviced a portfolio of just over 287,000 residential mortgage loans with a UPB of $45.1 billion, of which nearly 89% are subprime loans. Litton also services a portfolio of 1,819 small balance commercial loans with a UPB of $626.3 million.
Fitch is scheduled to perform its annual operational review of Litton's servicing platform in the third quarter of 2011, at which time further details on the integration plans will be discussed. Upon completion of its analysis Fitch will further comment on its servicer ratings and any impact from the transition which may be evident at that time.
In November 2010, Fitch assigned a negative outlook for the entire U.S. Residential Mortgage Servicer ratings sector on increased concerns surrounding alleged procedural defects in the judicial foreclosure process. Responses to Fitch's recent survey of its rated servicers regarding internal procedures used to verify and execute foreclosure affidavits indicate that all servicers are taking this matter seriously and are continuing to work to resolve any issues uncovered. Fitch may place an individual servicer's ratings on Rating Watch Negative and/or downgrade the ratings if the servicer does not diligently and timely review its processes and take immediate corrective action to remediate any foreclosure action or documentation failures. Fitch may take similar actions on a servicer's ratings if the impact of the additional costs that must be borne by the servicer significantly affects its financial condition. Until those conclusions are reached, the negative outlook on the sector impacts all U.S. RMBS servicers.
Fitch rates residential mortgage primary, master, and special servicers on a scale of 1 to 5, with 1 being the highest rating. Within some of these rating levels, Fitch further differentiates ratings by plus (+) and minus (-) as well as the flat rating. For more information on Fitch's residential servicer rating program, please see Fitch's report 'U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria,' dated Jan. 31, 2011, and 'Global Rating Criteria for Structured Finance Servicers,' dated Aug. 16, 2010, both available on the Fitch's Web site at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria' dated Jan. 31, 2011
--'Global Rating Criteria for Structured Finance Servicers' dated Aug. 16, 2010.
Applicable Criteria and Related Research:
U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=600065
Global Rating Criteria for Structured Finance Servicers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547305
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