Wells Fargo Bank provided inaccurate monthly reports to investors regarding the level of delinquencies in loan pools it oversaw last year, according to a disclosure made by the bank inside a recent pooling and servicing agreement. Wells's disclosure will likely be the first in a number of such admissions as the Regulation AB servicer assessment and attestation reports become due, Fitch Ratings analysts said.
Based on Wells's disclosure, the number of monthly remittance reports that have errors is unclear. This comes at a time when home-equity loan investors are counting on remittance reports for an indication about where to sell, short or buy, making the need for accuracy particularly pressing, market participants said last week.
According to the Wells disclosure, which is included in the SASCO 2007-WF1 home equity deal PSA, "The assessment of compliance indicates that certain monthly investor or remittance reports included errors in the calculation and/or the reporting of delinquencies for the related pool assets, [errors which] may or may not have been material, and that all such errors were the result of data processing errors and/or the mistaken interpretation of data provided by other parties participating in the servicing function." Wells added that, "All necessary adjustments to Wells Fargo Bank's data processing systems and/or interpretive clarifications have been made to correct those errors and remedy related procedures."
"We are expecting to see quite a number of disclosures as the Reg AB reporting requirement shakes out," said Mary Kelsch, a senior director in Fitch's operational risk group.
While such disclosures are taken into account by rating agencies when looking at servicing and trustee processes, the ability of these servicers to continue operations has perhaps been a more pressing matter among those involved in the subprime servicing process in recent months. A number of subprime servicing shops have either been downgraded or are on watch for downgrade as a result of the crumbling credit situation of their parent companies. Fitch and Moody's last month lowered the subprime servicer ratings of both Fremont General Corp. and New Century Financial Corp. to the equivalent of "below average," while S&P placed both on a negative watch. The ratings singled out the two top-five subprime mortgage lenders as maintaining the lowest-rated servicing shops under surveillance by the rating agencies.
Moody's on Feb. 22 placed the servicer ratings of Accredited Home Lenders, Ameriquest Mortgage Co., Novastar Mortgage and Specialized Loan Servicing on watch for a downgrade. Fitch last week lowered AMC's subprime servicer rating to RPS3+' with a negative watch and also placed Novastar's subprime servicing rating on a negative watch. Accredited Home Lenders' subprime servicer rating was lowered to RPS3-' by the rating agency the previous week.
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