Moody’s Investors Services has downgraded the servicer quality (SQ) ratings of JPMorgan Chase and Chase Home Finance. The collective ratings in question are as primary servicer of prime residential mortgage loans from ' SQ1 ' to ' SQ2 ’, and as primary servicer of subprime residential mortgage loans from SQ1 to SQ2. Both will remain on review for possible further downgrade.
A Moody’s press releases stated that the basis of the downgrades were the deterioration of both the company’s collection metrics as well as foreclosure timeline metrics relative to its peers. Another major consideration was the “ongoing operational challenges associated with the regulatory environment”.
These ratings will remain on review for possible further downgrade by Moody’s analysts due to “deficiencies in Chase’s foreclosure process”.
As a result of these actions, Chase’s collections assessments were lowered to above average from strong by the ratings firm, as was its assessment for servicing stability. Moody’s analysts believe this reflects Chase’s persistent operational challenges resulting from regulatory scrutiny and the vast amount of defaulted loans.
The firm’s assessments for loss mitigation remain at above average, while its foreclosure timeline management for prime and subprime SQ ratings stayed at average, according to the release.
Currently, Moody’s rates its parent company, JPMorgan Chase & Co. at ‘Aa3’ on negative outlook, while its subsidiary JPMorgan Chase Bank received a rating of ‘Aa1’ on negative outlook.
According to the release, as of March 2011, Chase’s servicing portfolio totaled about 8.3 million loans, with an unpaid principal balance of about $1.19 trillion.
Moody’s stated that its SQ ratings “represent its view of a servicer’s ability to prevent or mitigate asset pool losses across changing markets.”
The most recent ratings action taken by Moody’s for Chase was on September 29, 2010, when the ratings firm placed all Chase SQ ratings on review for possible downgrade as a result of issues in its foreclosure processes and performance metrics.
Last week, Moody’s also placed Ocwen Loan Servicing on review for possible downgrade as a primary servicer of subprime residential mortgage loans and as a special servicer of residential mortgage loans.
The ratings firm attributed this action to potential integration issues resulting from Ocwen’s recent acquisition of Litton Loan Servicing and its approximately $41.2 billion servicing portfolio.
As of May 31, Ocwen’s servicing portfolio totaled about 450,000 loans with an unpaid balance of about $69.4 billion.