Wells’ Master Servicer Rating Lowered a Notch

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MORTGAGE EXPERT
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Wells Fargo & Co.’s master servicing unit has been hit with a downgrade. One factor impacting the lowered rating was inadequate oversight of the underwriting of loan modifications.

The servicer quality rating on residential loans for Wells Fargo Bank, N.A., as a master servicer was cut to SQ1- from SQ1, Moody’s Investors Service said Tuesday.

The ratings agency hands out ratings on a scale where SQ1+ is the highest possible rating and SQ5- is the worst.

Wells operates its master servicing operations as part of its corporate trust services division. The Columbia, Md.-based unit employees 205 people.

As of Dec. 31, 2010, the master servicing portfolio stood at 2.0 million loans for $450 billion that are serviced by 920 primary servicers.

Moody’s attributed its downgrade decision to the “impact to stability related to post-crisis reduction in extraordinary governmental systemic support of large banks such as Wells Fargo and headline risk stemming from regulatory scrutiny of robo-signing and other servicing practices.”

Wells’ master servicing platform is under pressure because of the government’s reduced systematic support as indicated in the Dodd Frank act. In addition, the servicer is subject to consent orders and other regulatory inquiries initiated by state attorneys general and federal bank regulators.

But that wasn’t the only reason for the lowered rating.

Moody’s said that the servicer’s level of default oversight compared to its peers also drove the downgrade.

“In the current economic environment in which loss mitigation workouts are closed in large numbers, the master servicer’s default oversight role is even more important,” the notice stated. “Specifically, when modification approval is required, Wells Fargo checks that the modification program is in compliance with the servicing documents but does not take the extra step to review whether the modification was poorly underwritten.”

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