Fitch Ratings has downgraded Residential Capital's (ResCap) RMBS servicer ratings. The rating agency said that servicer ratings also remain on Rating Watch Negative by Fitch, so there's a possibility of a further downgrade down the road.

According to the rating agency, the servicer rating downgrades are a result of ResCap’s weakening financial condition. Fitch downgraded ResCap’s Issuer Default Rating (IDR) to ‘C' from 'BB-' on May 2 after the firm's announced debt exchange offer.  ResCap’s corporate ratings are still on Rating Watch Negative pending the execution of the debt exchange offer.

The servicer rating actions reflect the continued pressure on ResCap's liquidity position and financial flexibility as well as the potential impact on the company’s servicing operations, according to the rating agency. A firm's financial condition is an important component of Fitch's servicer rating analysis.

As of March 31, ResCap serviced 3.28 million loans for $458 billion, which does not include real estate owned (REO) properties. The servicing portfolio comprised 55% prime, 26% second liens, 11% subprime, and 8% Alt-A collateral.

Fitch will still monitor the firm's financial condition as well as its impact on the company’s servicing and operational capabilities and performance.

The Rating Watch Negative means that Fitch may either downgrade or affirm ResCap’s servicer ratings depending on the stability of its servicer's portfolio, operational capabilities, and financial condition.

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