Moody's has placed on review for possible downgrade the AAA ratings of the Series 2009-ADV2 notes issued from AH Mortgage Advance Trust 2009-ADV2 (SAF), a servicing advance receivables securitization sponsored by American Home Mortgage Servicing Inc. (AHMSI).
The rating action is driven by certain deficiencies in the reconciliation process for deals serviced by AHMSI, Moody's says, adding that it is not taking any rating action on residential mortgage-backed securities (RMBS) serviced by AHMSI, ‘solely as a result of the concerns related to the reconciliation processes.’
The rating action on SAF reflects the agency's concerns about a significant number of aged reconciliation items outstanding in AHMSI's RMBS custodial bank accounts. Custodial bank account reconciliation is the process of comparing figures from the accounting records (cash book, loan-level records) against those shown on the monthly bank statements. When a servicer is unable to reconcile any entry between the bank books and the accounting books, that entry becomes a ‘reconciliation item.’
Moody's notes that reconciliation items are not uncommon in servicing, but that servicers usually resolve such items within 30 days of being notified. According to Moody's, AHMSI has a significant amount of aged (i.e., 60+ days) reconciliation items. The majority of the items exist in loan liquidations, modifications, mortgage insurance claims and AHMSI's "stop advance" process on delinquent loans.
"AHMSI has indicated that reporting inconsistencies between two internal systems, Loan Processing System (LPS) and a custom-designed system, have caused most of the reconciliation items," according to a Moody's statement. "AHMSI's servicing system, or the system of record, is LPS. However, LPS is not the system that AHMSI uses for all functions related to investor reporting. For reporting to investors, master servicers and other transaction related parties, AHMSI uses a custom-designed solution."
AHMSI says it is taking actions to address Moody's concerns, and it has agreed to increase by $20 million. the reserve fund of the securtization trust in question.
"We note, however, that we haven't incurred any losses to date directly related to the reconciliation effort, nor do we expect to incur any losses in the future," AHMSI responded in a statement. "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 maintaining the AAA rating of the securitization."
AHSMI has also contracted with third-party vendors to resolve the aged items, determine their root causes and assist in implementing permanent process modifications. Moody's says the most recent estimate from AHMSI to complete this project is over the next four to six months.
The AH Mortgage Advance Trust 2009-ADV2 transaction closed in August 2009, and its revolving period is due to end this August. At such time, the rated notes will begin to amortize and the SAF will no longer finance new advances made to the pledged RMBS transactions, Moody's says.