Moody’s Investors Service said last week it had downgraded the servicer ratings of Mortgage Lenders Network USA, Inc. to SQ4 from SQ3 as a primary servicer of prime, subprime and second lien loans. Additionally, the rating agency said it is keeping MLN’s servicer quality ratings on continued watch for a possible downgrade. Moody’s said its actions were reflective of the financial and operational stress the company has been experiencing as of late. In addition to previously published challenges, MLN is currently under investigation by the Connecticut Department of Banking as well as other state regulatory agencies, and is presently not originating mortgage loans.

At this time, the company has informed Moody’s that it is negotiating a potential restructuring. Moody’s said future ratings adjustments will be impacted by the company’s ability to restructure. Moody’s noted that the troubles at MLN have the potential to impact residential mortgage-backed securities backed in whole or in part by loans originated or serviced by MLN. Although Moody’s feels it is too soon to determine which specific transactions may be affected, the level of impact will depend primarily upon the proportion of loans serviced by MLN as well as the proportion of MLN-originated loans in a given transaction and the performance of these loans. Moody’s SQ ratings represent its view of a servicer’s ability to prevent or mitigate asset pool losses across changing markets. The rating scale ranges from SQ1 (strong) to SQ5 (weak). Where appropriate, a “+” or “-” modifier will be appended to the relevant rating to indicate a servicer’s relative servicing quality within a particular category. For more information, visit http://www.moodys.com.