Fitch Ratings late last week downgraded the ratings of nine mortgage servicers citing the growing burden of managing delinquent and defaulted loans amid a climate of "heightened regulatory scrutiny."

The rating cuts come one day after the Treasury began withholding incentive payments due to poor performance. But even after the downgrades, Fitch still considers all nine servicers to "demonstrate a high performance in overall servicing ability."

"They're really going to have to lick their wounds about this one," said Larry White, a professor at New York University's Stern School of Business, of the banks. "To describe the major guys even in the high performance category just sounds like puffery."

Servicer quality ratings are generally commissioned by the servicers themselves, and are supposed to cover everything from data management to quality of staff to effectiveness of modifications.

Fitch could not immediately be reached for comment.

The downgrades of Bank of America, JPMorgan Chase and CitiMortgage by two notches, and of Wells Fargo, MetLife, PNC and Suntrust by one notch, were due largely to consent decrees last month from regulators. Fitch also cited the "slower than expected pace that institutions have demonstrated in responding to the foreclosure crisis and implementing process changes."

Fitch said it may downgrade other servicers after a full annual review later this year.

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