Moody's Investors Service downgraded Bank of America (BAC) mortgage servicer ratings Tuesday, citing the "deterioration" in the bank's collections and loss mitigation performance. Moody's rates servicers on a scale of SQ1 to SQ5, with the latter being the weakest. The reviews determine how Moody's view the mortgage servicer's ability to prevent or mitigate asset pool losses as markets move. And markets have definitely moved. BofA was one of the 14 servicers that signed consent orders with the Office of the Comptroller of the Currency and the Federal Reserve after months of investigation into foreclosure problems found to prevalent across the industry. BofA froze foreclosures last fall when employees were found to signing affidavits en masse without a proper review of the loan documents. Moody's lowered BofA's servicer rating on prime, subprime and second lien mortgages to SQ2 from SQ1. The credit rating agency did the same to BofA's rating as a special servicer for mortgages. Moody's put the servicer ratings up for review for a possible downgrade in October 2010. "All of the SQ ratings, except for the Primary Servicer of second liens, remain on review for possible further downgrade due to irregularities in Bank of America’s foreclosure process," Moody's said. BofA currently holds a servicing portfolio of roughly 13.3 million loans, excluding those already repossessed into REO status. These loans account for an unpaid principal balance of approximately $2.05 trillion. "Servicing operations can be stressed by the increasing number of delinquent loans while at the same time increasing the need for liquidity," Moody's said. "The SQ rating reflects our expectation of the impact that the servicing will have on the on-going credit performance of the portfolio." A BofA spokesperson said the company will fully implement the requirements of the consent orders within three to six months, according to guidelines. As for the downgrades, the spokesperson said the actions did not take the bank off guard. "It's not something that's totally unexpected," the spokesperson said. Write to Jon Prior. Follow him on Twitter @JonAPrior.