Overview	
     -- American Home Mortgage Servicing has good earnings and adequate 	
leverage, and it should benefit from favorable industry dynamics.	
     -- However, we believe that the firm's expansion into a dislocated 	
residential mortgage servicing industry entails significant risks and that the 	
strong demand for subprime servicing may moderate. 	
     -- We are assigning our 'B+' long-term counterparty credit rating on 	
American Home Mortgage Servicing.	
     -- The outlook is stable, balancing the hazards of growth against 	
favorable industry trends.	
	
Rating Action	
On May 4, 2012, Standard & Poor's Ratings Services assigned its 'B+' long-term 	
counterparty credit rating on American Home Mortgage Servicing Inc. (AHMSI). 	
The outlook is stable.	
	
Rationale	
Standard & Poor's ratings on AHMSI are based on its short operating history, 	
concentration in subprime mortgage servicing, dependence on wholesale funding, 	
and operational risks associated with the firm's rapid growth. Good earnings, 	
adequate leverage, and favorable industry conditions partly offset these 	
weaknesses. The support that AHMSI has received from its private equity 	
sponsor and strong elements of its enterprise risk management also support the 	
rating. As the economy improves, the strong demand for subprime servicing 	
could moderate, which tempers our overall view of AHMSI's business model.	
	
AHMSI was incorporated as a subprime residential loan servicer in September 	
2007 when WL Ross & Co. LLC purchased the servicing platform and related 	
mortgage servicing rights of American Home Mortgage Holdings Inc. as part of 	
that predecessor company's Chapter 11 proceedings. The firm subsequently began 	
originating higher-credit-quality, government sponsored entity 	
(GSE)-conforming mortgage loans with the aim of establishing not only an 	
additional revenue source, but also an engine for generating servicing rights 	
when the demand for subprime servicing abates.	
	
AHMSI is exposed to operational risks as it grows its business. The company 	
has acquired approximately $122 billion in unpaid principal balance of 	
servicing assets between September 2007 and February 2009 in three large 	
acquisition transactions. In addition, management intends to ramp up prime 	
originations. At the same time, the company has taken steps to expand into 	
other business lines that will complement its servicing arm, including real 	
estate brokerage services, valuation services, and insurance products. 	
Although increased diversification could support the rating, the growth 	
process adds incremental risk.	
	
Regulatory changes could enhance the firm's strategic positions by pushing 	
banks to scale back residential origination and servicing. The firm's recent 	
earnings also support the rating.	
	
Outlook	
The stable outlook reflects our belief that the company will grow fairly 	
quickly and benefit from strong demand for subprime servicing. We also expect 	
the company to ramp up its prime originations. An upgrade is unlikely in 	
2012-2013. As mortgage markets stabilize and the effect of regulatory changes 	
becomes clearer, we could raise the rating if the company is able to manage 	
the risks associated with its growth strategy and if it reports stable 	
earnings and leverage through 2012-2013. Specifically, after markets and the 	
firm's business mix stabilize, we could upgrade AHMSI if its pretax margins 	
remain in excess of 25% and its EBITDA coverage of interest (after adjusting 	
for nonrecourse debt) remains above 2x. We could lower the rating if 	
operational miscues or poor market conditions result in multiple quarters of 	
losses, increase recourse leverage, or limit the firm's ability to obtain 	
servicing advances or warehouse funding for originations.	
	
Related Criteria And Research	
Rating Finance Companies, March 18, 2004	
	
Ratings List	
	
New Rating	
	
American Home Mortgage Servicing Inc.	
 Counterparty Credit Rating             B+/Stable/--       	
	
	
	
	
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