Troubled lender Residential Capital, LLC is taking key steps to enable easier loan modifications on mortgages involved in certain RMBS transactions it backs, according to a statement released over the past weekend by Moody’s Investors Service. The rating agency said that Residential Funding Company, LLC — a ResCap subsidiary that was at one time among that largest underwriters/issuers of subprime RMBS — had increased the limits on the number of loans in certain residential mortgage pools that were permitted to be modified, although further details weren’t made available. ResCap officials did not immediately respond to a request for further information; a Moody’s representative said that further details on the changes made weren’t immediately available. The move by RFC suggests that investors and issuers are looking to amend terms of respective Pooling & Servicing Agreements that underlie key subprime and Alt-A transactions; PSA clauses can vary signficantly from deal to deal, but HW’s sources suggest that many private-party deals had a so-called “five percent clause” that permits servicers to modify loans equal to 5 percent of the pool’s balance without investor approval. Modification activity reaching above that cap would require the consent of investors, we were told. “RFC and the respective issuers of the affected transactions requested that Moody’s provide its opinion to them as to whether its ratings on the Moody’s-rated securities issued by the affected transactions would be downgraded or withdrawn as a result of the increases in loan modification limits,” the rating agency said in a statement. Seven different deals saw their modification limits increased, Moody’s said; all are subprime mortgage deals from 2005 to 2007; sources told HW that all of the involved deals are seeing significant borrower delinquencies and default activity. ResCap, tied to former General Motors division GMAC Financial Services, has been hit hard by woes in the U.S. mortgage markets, posting an $859 million loss in the first quarter. GMAC has since been providing liquidity to the ailing lender, most recently lending $468 million to the ailing lender. On Tuesday, RFC also agreed to transfer an unspecified number of mortgages to Lehman Brothers (LEH) unit Aurora Loan Services, LLC, in a separate statement provided by Moody’s; it’s unclear why RFC agreed to transfer the loans. Loan servicing rights are commonly resold, but rarely transferred (without sale) unless investors or a master servicer require the transfer of loans. All deals involved in the transfer involve Wells Fargo & Co. (WFC) as master servicer; calls to the company for comment were not immediately returned. Disclosure: The author held no positions in publicly-traded firms mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.