Moody's Investors Service placed the mortgage servicer quality (SQ) ratings of MetLife Home Loans, Litton Loan Servicing, and Bayview Loan Servicing on review for possible downgrade yesterday.

For MetLife, Moody's cited the company's employees signing affidavits while not having
full personal knowledge of every item in the affidavit. The serivicing firm also temporarily postponed foreclosure sales in some states.

The rating actions on Bayview and Litton were because of the possible irregularities in their foreclosure processes that could cause delayed foreclosures and longer REO timelines. The delays can also result in reputational risk and legal challenges to previously completed foreclosures for the firms.

During the review period, the rating agency will mostly focus on determining how much longer the foreclosure and REO timelines will be and the effectiveness of new procedures. 

Additionally, Moody's will review the legal and financial effect of the recent developments to these firms' servicing operations. It will also review these firms' quality control processes and the oversight of the foreclosure document execution department.

Specific Rating Actions

The rating agency placed on review for possible downgrade MetLife Home Loans' SQ rating of
'SQ2-' as a primary servicer of prime residential mortgage loans. It also lowered the timeline assessment to average from above average.

MetLife Home Loans said that it will complete the refiling of affidavits, if needed, by November. It is a unit of MetLife Bank, a wholly owned subsidiary of MetLife, which is rated 'A3'  and is on negative outlook by Moody's.

MetLife Home Loans' servicing operations are located in Irving, Texas. The previous rating action for MetLife Home Loans' SQ ratings happened on July 26. Moody's at that time downgraded the firm's SQ ratings to 'SQ2-' from 'SQ2' as a primary servicer of prime loans.

Moody's has placed on review for possible downgrade the following Litton's SQ ratings as follows: its 'SQ2+' as a primary servicer of subprime residential mortgage loans and its 'SQ2+' as a special servicer of residential mortgage loans. The rating agency has also lowered the foreclosure and REO timeline assessment for these SQ ratings to average from above average.

According to Moody's, the timelines might be extended should certain jurisdictions require restarting the foreclosure process of loans already in foreclosure. On Oct. 8, the servicing firm
said that it was halting some foreclosures while it completes a review of its procedures in the documentation review process.

The effect of the possible servicing irregularities on the validity of previous foreclosures and on Litton's servicing operations is still uncertain, Moody's said.  The rating agency will review the legal impact of the recent developments to the servicing operations as well as Litton's quality control processes and its oversight of its foreclosure document execution department.

As of June 30, Litton's servicing portfolio reached 308,770 loans (including REO) for an unpaid principal balance of around $48.4 billion. Although operated as a standalone entity, Litton is a wholly-owned subsidiary of Goldman Sachs Bank. This in turn is an indirect subsidiary of The Goldman Sachs Group, which is currently rated 'A1' and is on negative outlook for its senior unsecured debt. Goldman Sachs Bank has an 'Aa3' issuer rating, which is on negative outlook.

The previous rating actions for Litton's servicer quality ratings occurred on Aug. 27. At that time, the firm's SQ ratings as a subprime loan primary servicer and as a special servicer were downgraded to 'SQ2+' from 'SQ1-.' Meanwhile, its SQ rating as a primary servicer of second lien loans was affirmed while its rating of 'SQ2-' as a primary servicer of manufactured housing homes was withdrawn at the company's request.

The rating agency has also placed on review for possible downgrade Bayview Loan's 'SQ2-' rating as a special servicer of residential mortgage loans. Additionally, Moody's has  lowered the foreclosure and REO timeline assessment for that rating to average from above average.

The timelines may be extended should certain jurisdictions require restarting the foreclosure process on loans that are already in foreclosure. Bayview is currently investigating possible issues regarding this matter, as well as document notarization and has yet to come to a conclusion. Bayview has told Moody's that affidavits related to foreclosure matters were executed by a small number of senior individuals and were not part of an assembly line process.

The impact of possible servicing irregularities on the validity of previous foreclosures and on Bayview's servicing operations is still uncertain, according to Moody's.

Bayview is the special servicing subsidiary of Bayview Asset Management, a fund management business focusing on mortgage acquisition and securitization. As of May 31, Bayview's servicing portfolio totaled 32,052 residential mortgage loans and 14,810 small balance commercial loans, which excludes REO, for a total unpaid principal balance of about $9.6 billion.

The previous rating action for Bayview's SQ ratings occurred on Sept. 14. At that time, Moody's affirmed Bayview's ratings as a special servicer of residential mortgage loans and as a special servicer of small balance commercial loans at 'SQ2-'.

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