The deteriorating performance of certain prime and subprime loans serviced by Wells Fargo (WFC) prompted Moody's Investors Service to downgrade the bank's mortgage servicer ratings.

Analysts said performance of loans serviced by Wells weakened in prime collections and timeline management as compared to peers in the segment. The ratings agency said the bank's foreclosure timelines grew substantially because of intense scrutiny of the foreclosure process that began in 2010. 

The $25 billion mortgage servicing settlement with attorneys general also is pressuring the servicing segment of Wells Fargo. 

Analysts lowered the bank's prime and subprime ratings down to SQ2 from SQ1. Servicers are rated on a scale from SQ1, which is strong, to SQ5, which is considered weak. The scale reflects how well Moody's believes a servicer is positioned to prevent or mitigate asset pool losses across markets.

"The rating downgrade also considers several factors which place negative pressure on Wells Fargo Home Mortgage's servicing stability," analysts said.

Moody's downgraded to credit rating of Wells Fargo to Aa3 from Aa2 since it last reviewed the servicer rating, due to a reduction in the government support afforded to Wells and other financial institutions.

And analysts said Wells Fargo "faces significantly increased regulatory and public scrutiny," including the consent order of last April and the recent attorneys general settlement.

kpanchuk@housingwire.com