Moody’s Investors Service said late last week that it has placed the servicer quality rating of Popular Mortgage Servicing, Inc., also known as Equity One, Inc., on review for a possible downgrade. Moody’s said its action was due to the announcement by the parent corporation, Popular, Inc., that it will close its subprime wholesale and retail origination channels but continue the servicing operations. Currently, Popular is rated SQ2- as a primary servicer of subprime residential mortgage loans. Moody’s rating is based on the current assessments of above average collection abilities, average loss mitigation results, above average timeline management and above average servicing stability. Popular’s current servicing portfolio is comprised of loans that were originated by the discontinued subprime wholesale and retail channels, but the company is looking to potentially expand servicing for loans with a higher credit quality. Moody’s believes the changes in strategic direction of the servicing operations and the resultant uncertainty as to the source of future loans to maintain, or expand, the servicing portfolio impacts the company’s overall servicing stability. Furthermore, the changes also create uncertainty in the company’s ability to maintain its servicing performance and whether the historical level of investment in the servicing platform, staffing levels, turnover rates, and the composition of the management team can or will be maintained. Moody’s said that it expects the most likely downside scenario to be a reduction in Popular’s servicing stability assessment from above average to average, with a corresponding change in the subprime primary servicer rating of SQ3+ from SQ2-. In addition, Moody’s said the changes in the servicing operation may have an impact on the residential mortgage-backed securities (“RMBS”) backed in whole or in part by loans serviced by Popular. Although it is too soon to determine the amount by which specific transactions may be affected, the rating agency said that the level of impact will depend primarily upon the proportion of loans serviced by Popular in a given transaction and the performance of such loans. Popular is a wholly-owned subsidiary of Popular North America, Inc., which is rated A3 for senior unsecured debt. Popular North America, Inc., in turn, is an indirect subsidiary of Popular, Inc. rated A3 for senior unsecured debt. Popular, Inc. is the largest commercial bank in Puerto Rico. Popular’s servicing operations are independent of the company’s Puerto Rico-based servicing platform. The Puerto Rico operations are not incorporated in Moody’s assessment of Popular.
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