So Lehman is down for the count. The stock market is tanking to the tune of a 500 point drop in the Dow Jones Industrials, when this story was published. But those in the mortgage industry are wondering about the fate of a different company: Littleton, Colo.-based Aurora Loan Services, a Lehman subsidiary and lender/servicer that faces an increasingly uncertain future as its corporate parent enters restructuring. In a press statement, Lehman Brothers officials said that none of its broker-dealer subsidiaries or other subsidiaries would be included in the Chapter 11 filing to be made in U.S. Bankruptcy Court for the Southern District of New York. But it’s unclear exactly what that means, various experts told HW on Monday. “Usually, a Chapter 11 filing means you include your subsidiary interests as assets,” said one attorney that spoke with HW. “I’m not sure how Lehman is structured to make this possible.” He told HW that various attorneys in the field had been exchanging emails most of the day, debating how the Lehman bankruptcy would affect their shared client, if at all. In lending terms, Aurora is a shell of its former self: the company, once an Alt-A powerhouse for Lehman, laid off 1,300 employees starting in January of this year as it cut both wholesale and correspondent origination channels. As recently as the first half of 2007, however, Aurora was regularly seen producing more than $3 billion a month of Alt-A mortgages. But in terms of servicing, Aurora is a veritable giant — ranked as the 15th largest servicer by Inside Mortgage Finance for 2007, the company boasts a portfolio of roughly 530,000 loans totaling $112.8 billion in primary and special servicing. Of that total, according to statistics provided by Fitch Ratings, 271,400 loans in the portfolio were Alt-A totaling $69.4 billion, while 13,500 subprime loans totaled $2.2 billion and a combination of 241,000 FHA, VA, conventional conforming, scratch and dent home equity, Alt-B, and non-guaranteed SBA loans totaled $41.1 billion. Beyond primary servicing, the company is the largest master servicer this side of Wells Fargo & Co. (WFC), managing a master servicing portfolio of 1.04 million loans totaling $209 billion. Somewhat presciently, Fitch warned last Friday that it might downgrade Aurora’s best-in-class ‘RMS1’ rating, and placed similar warnings on the company’s strong ratings for prime and Alt-A primary servicing as well. Standard & Poor’s Ratings Services warned of similar pending downgrades on Saturday, saying that a downgrade to Lehman would likely flow through to Aurora’s key ratings. All major rating agencies have slashed Lehman’s ratings in the wake of the bankruptcy filing, although they have yet to take any action on Aurora. Calls to representatives as both Fitch and S&P were not returned by the time this story was published. By law, employers with more than 100 workers who are planning mass layoffs are required to contact the their state’s offoce of the federal Rapid Response Program, which helps dislocated employees. Colorado’s office “has not received a WARN [Worker Adjustment and Retraining Notification] Act notice from Lehman Brothers,” Bill Thoennes, a spokesman for the Colorado Department of Labor and Employment, told the Denver Business Journal on Monday morning. “But we’re not quite sure what that means.” Neither, apparently, is the rest of the industry. One thing appears to be certain, however: with its corporate parent now in bankruptcy, funding operations may be of much larger concern for Aurora. Many servicers have been pinched by servicing advances as of late, and although its unclear to what extend Aurora was feeling the pain of outstanding advances, HW’s sources suggested that Lehman’s bankruptcy would “absolutely affect funding availability” at the Colorado-based company. Disclosure: The author held no relevant positions when this story was published; indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.