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Related Issuers
Rating Action - Servicer:

Moody's affirms Green Tree's Subprime, Second Lien and MH SQ Ratings and places the ratings on review for possible downgrade

Global Credit Research - 24 May 2012

U.S. Residential Mortgage Servicer Rating Actions

New York, May 24, 2012 -- Moody's Investors Service ("Moodys") has affirmed Green Tree Servicing LLC's ("Green Tree") servicer quality (SQ) rating of SQ2- as a subprime servicer, SQ2 as a servicer of second lien residential mortgage loans and SQ2 as a servicer of manufactured housing loans. All of the ratings have been placed on review for possible downgrade.

RATINGS RATIONALE

The review for downgrade is based on concerns related to continued rapid growth of Green Tree's servicing portfolio and the challenges they may face in managing additional volume while maintaining servicing quality. Green Tree has demonstrated a reasonable ability during this time to integrate large servicing acquisitions. Nonetheless, the rapid growth poses operational integration risks. As of year-end, the company serviced a total of $86 billion in UPB and 1,042,000 accounts, the company grew its servicing portfolio by approximately 50% in 2011 based on number of accounts. The SQ ratings apply only to private securitized loans serviced by Green Tree which account for 26% of their subprime and second lien portfolios. Performance results were based on a static pool period between August 2010 through July 2011.

The company's subprime rating is based on above average collection abilities, average loss mitigation abilities and strong foreclosure and REO timeline management. The second lien rating is based on Green Tree's strong collection and loss mitigation abilities. The company's manufactured housing rating is based on above average servicing ability. The stability assessment, as referenced below, for all of the ratings is below average.

The collections assessment was affirmed at strong for second liens and lowered from strong to above average for subprime. The lowering of the subprime collection assessment to above average was mainly driven by performance results which was not consistent with private securitization servicer peers for the review period. Green Tree utilizes a unique single point of contact approach in collections as well as decentralized regional offices to facilitate borrower contact.

Green Tree's loss mitigation assessment was affirmed at strong for second liens and lowered from above average to average for subprime. The subprime loss mitigation assessment was lowered mainly due to Green Tree's volume of modifications and short sales performed as compared to private securitization servicer peers. Green Tree utilizes a robust loss mitigation decisioning tool and has a dedicated workout unit that proactively explores all available options to cure loans and identify loss mitigation opportunities.

Green Tree's foreclosure and REO timeline management assessment for subprime was upgraded to strong from above average. The company improved liquidation timeline results despite deteriorating market conditions and a growing inventory.

We view Green Tree's stability assessment to be below average. On July 1, 2011, Walter Investment Management Corp. ("WIMC") acquired Green Tree from an investor consortium led by Centerbridge Partners, L.P. Green Tree's business strategy continues to focus on third party servicing of performing and non-performing mortgages. Green Tree's stability assessment reflects the increasingly more difficult market conditions that place pressure on the servicing operations.

The previous SQ rating actions for Green Tree occurred on May 27, 2011. At that time, we upgraded Green Tree servicer quality (SQ) ratings to SQ2 as a primary servicer of second lien residential mortgage loans. We also affirmed Green Tree's SQ2- rating as a subprime servicer and SQ2 rating as a servicer of manufactured housing 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. Moody's servicer ratings are differentiated in the marketplace by focusing on performance management. SQ ratings for U.S. residential mortgage servicers incorporate assessments of delinquency transition rates, foreclosure timeline management, loan cure rates, recoveries, loan resolution outcomes, and REO management -- all critical indicators of a servicer's ability to maximize returns from mortgage portfolios.

Moody's servicer ratings also consider the company's ability to maintain its focus on high quality servicing in an economic downturn. Servicing operations can be stressed by increasing the number of delinquent loans while at the same time increasing the need for liquidity. The SQ rating reflects our expectation of the impact that the servicing will have on the on-going credit performance of the portfolio. For this reason, Moody's monitors SQ ratings based on periodic information provided by servicers and conducts a formal re-evaluation of its servicer ratings annually.

The methodology used in this rating was "Moody's Approach to Rating Residential Mortgage Servicers" published in January 2001. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Other factors used in this rating are described in "Updated Moody's Servicer Quality Rating Scale and Definitions" published in May 2005.

REGULATORY DISCLOSURES

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Francis Wissman
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Linda Stesney
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Green Tree's Subprime, Second Lien and MH SQ Ratings and places the ratings on review for possible downgrade
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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