In a move that may prove to be the start of a trend, Moody’s Investors Service said Monday that it had downgraded the servicer quality ratings of SN Servicing Corporation to SQ3- from SQ3+ as a primary servicer of subprime loans, and SQ3 from SQ2- as a special servicer. The downgrade was driven mainly by the change in the servicing stability assessment from average to below average, the rating agency said. SN is a wholly-owned subsidiary of privately-held Security National Master Holding Company LLC and is based in Eureka, California with offices in Sacramento, California and Baton Rouge, Louisiana. SNMHC’s core business is purchasing and servicing distressed residential and small balance commercial mortgages — business that should otherwise be booming right now, especially in residential mortgages. (Fitch’s ratings exclude the commercial servicing business). The rating agency cited “increasingly difficult market conditions that have placed pressure on the financials of the parent and servicing operations of SN” — and sources that spoke with HW on condition on anonymity said that the rating agency’s language was code speak for the growing bite of servicing advances, although Moody’s was very careful not to come out and use the term. HW has reported on the growing problem of servicing advances over the past few weeks; this is the first downgrade of a third party residential servicer by a major rating agency over such concerns, but our sources suggest it will likely not be the last. It’s an issue that has more than a few independent servicers concerned, too, based on our discussions with various servicing managers in the industry. “The agencies are going to walk on eggshells around this,” said one source, a servicing manager at a commercial bank that asked not to be named. “But the ugly truth is that unless something changes, we’re going to see more servicers get squeezed.” It’s not currently known how large of an operation SN maintains, but the parent company held a loan portfolio totaling $2.5 billion in June of last year. For more information, visit http://www.moodys.com.

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