Fitch Ratings downgraded Option One Mortgage Corp.’s residential loan servicer ratings yesterday, citing several factors including the uncertain deal to sell the company to Cerberus Capital Management and the health of parent H&R Block.

The Irvine-based company’s prime rating dropped to ‘RPS2+’ from ‘RPS1′ and its special products rating dropped to ‘RSS2+’ from ‘RSS1′.

Fitch said the ratings remain on Rating Watch Negative where they were placed on July 17.

Here’s more on Fitch’s reasoning for its ratings, with an “offshore” reference, which I take to mean India:

“Fitch recently completed its operational review, which confirmed that Option One continues to be a capable servicer of subprime mortgages with an experienced management team, accomplished loan administration procedures, and solid internal control environment. Since Fitch’s prior review, Option One’s servicing manager departed and was replaced by the former servicing manager, who ran the servicing operation for a number of years. The company continues to make reductions to its current servicing staffing levels through attrition and leveraging offshore and domestic vendors. Option One continues to outsource back office functions to its offshore vendors and captive sites in an effort to further reduce costs. The company also outsourced several customer contact functions, including portions of loss mitigation and collection efforts. However, management recently determined that several of these customer facing functions, specifically loss mitigation are best handled by domestic associates who are more familiar with the current market conditions and issues surrounding loss mitigation, foreclosures and bankruptcies. As a result, the majority of loss mitigation and late stage collections are performed onshore in one of Option One’s site.

Historically, Option One’s special servicer rating was based on its ability to service its own defaulted loans. However, the company recently expanded its special servicing capabilities to service defaulted loans for other companies.”

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Posted in: Company Watch • Option One |

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