Moody’s Investors Service has downgraded one tranche from the GSAMP 2007-H1 and placed it on review for further downgrade along with five other tranches from thee subprime RMBS deals.
The other tranches currently on review are Fremont Home Loan Trust 2006-2, GSAMP Trust 2006-HE3, and Ownit Mortgage Loan Trust 2005-4.
The motivation for the ratings action is the anticipated cash flow disruptions resulting from Ocwen Financial Corp.’s acquisition of Litton Loan Servicing, according to a Moody’s press release.
The rating agency’s primary concerns are “the rate of realized losses reducing the balance of the mezzanine certificates, and the cash flow disruptions affecting the amount of principal that would normally be used to pay off the principal balance of these sort cash flow tranches.”
Moody’s analysts anticipate principal losses for short cash flow tranches if they are not paid off by the time of mezzanine write down. Additionally, it stated that the purchase of Litton could interrupt RMBS cash flows due to differing strategies on loan modifications and advances on delinquent loans.
Ocwen’s “tighter advancing policy” could ultimately result in a delay of payments to bondholders, and its preference for increased modifications would slow the liquidation of Litton’s loans, according to Moody’s.
These notices of review follow last week’s announcement by the ratings firm that Ocwen itself would be placed on review for possible downgrade as a primary servicer of subprime residential mortgage loans and as a special servicer of residential mortgage loans for the same integration issues.
Moody’s also took ratings action against JPMorgan Chase last week, downgrading its servicer quality (SQ) ratings as a primary servicer of both prime and subprime residential mortgage loans. The firm will remain on review for possible further downgrade.
For ASR’s coverage of both these recent actions, please click here.