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Mortgage Backed Securities | MBS News | MBS Statistics
News about commercial and residential mortgage-backed securities. Stories about ratings actions and changes to servicer ratings. Studies and reports about the performance of securitizations and problem vintages and classes. Subprime, Alt-A, home equity and j u m b o analysis.

American Home Addresses Servicing Issue

Reconciliation process leads to downgrade warning

March 22, 2010

By staff

Holders of some Aaa-rated notes sponsored by American Home Mortgage Servicing Inc. face a possible downgrade over concerns about its servicing performance. But the company is working on a solution and has committed $20 million in the meantime.

At issue are certain deficiencies in the reconciliation process for residential mortgage-backed securities serviced by the Coppell, Texas-based company, according to a statement Friday from Moody's Investors Service. The ratings agency is concerned about a significant number discrepancies between accounting records and monthly statements that have not yet been reconciled.

Moody's noted that while it is not unusual for servicers to have reconciliation items outstanding for up to 30 days, many of American Home's items are 60 days or more old.

"As items age beyond 30 days or more, the probability that either the servicer or the [RMBS] may suffer a loss increases, although there has been no evidence of this from the items cleared to date," the statement said.

The impacted issuance is AH Mortgage Advance Trust 2009-ADV2. Moody's warned that the Aaa ratings have been placed on review for possible downgrade.

American Home reportedly told Moody's that reporting inconsistencies between two internal systems, Loan Processing System and a custom designed system, are responsible for the delays. It provided a corrective action plan that includes contracting third-party vendors to resolve the aged items and help it design and implement a permanent solution.

Because it might take American Home four to six months to resolve the issue, Moody's said the servicer committed to increase the reserve fund for the RMBS by $20 million and maintain at least $10 million until the issue is resolved.

But if the reconciliation items continue to grow over next three months, then Moody's said it will downgrade the notes.

In its own statement, American Home indicated that around $225 million in securities are impacted. But the company noted no losses have yet been incurred, nor are any expected, as a result of the reconciliation effort.

"Our agreement to increase the reserve fund by $20 million and to maintain a material additional deposit in the fund until the situation is resolved demonstrates our strong commitment to maintain the AAA-rating of the securitization," American Home stated.

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