Green Tree’s Servicer Ratings Affirmed; Subprime Servicing Stability Questioned

Moody’s Investors Service announced yesterday that it has affirmed Green Tree Servicing LLC’s ratings of SQ3 as a primary servicer of subprime and second lien residential mortgage loans. In spite of affirming its rating of Green Tree, Moody’s noted below-average subprime servicing stablity in its review, reflecting a rapid decline in the company’s retained subprime servicing portfolio. The subprime servicing portfolio of the company has declined from $5.7 billion as of December 31, 2003 to $2.8 billion as of May 31, 2006. Green Tree performs primary servicing for subprime first lien, second lien, FHA, and manufactured housing loans. Moody’s ratings relate specifically to subprime first lien mortgages and second liens. The servicing portfolio of subprime mortgages and second liens was approximately $ 2.8 billion as of May 31, 2006. Moody’s assessed Green Tree’s collections and loss mitigation results to be above average. According to the ratings report, the company utilizes a solid technology infrastructure to service delinquent loans which includes the use of proprietary behavioral scoring models to prioritize collection calls. Moody’s also noted that Green Tree utilizes loan modifications and payment deferrals more frequently than other servicers. Moody’s said it considered Green Tree’s foreclosure and REO timeline management to be average. Delinquent loans are reviewed by supervisors prior to taking any legal action, and the servicer employs Fortracs to measure attorneys’ timeline performance. Green Tree is owned by a joint venture of two private equity firms: Fortress and Cerberus. Green Tree’s business strategy includes third party servicing, acquisition of performing and non-performing mortgages, residential mortgage backed securities and manufactured housing securities, and securitization of residuals. 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 measurement. 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. For more information, visit http://www.moodys.com.