Moody's Investors Service lowered ratings on about $300 million of Source One Mortgage Corp.'s securities, saying the company's recent buildup in subservicing may not be sustainable.

Source One, of Farmington Hills, Mich., quickly became one of the largest subservicers in the nation earlier this year, when it sold $17 billion of its servicing portfolio to Chase Manhattan Mortgage and agreed to subservice the loans for Chase for at least a year.

But if Chase does not renew its contract, Source One-which has only one other customer-will lose most of its subservicing volume, noted Moody's analyst Stanislas Rouyer. And Mr. Rouyer isn't convinced that other lenders will be flocking to Source One.

"It will take time not only to build the business but to prove to the market that they can achieve significant cost controls and efficiencies," said Mr. Rouyer. He downgraded Source One's senior unsecured debt to Baa3 from Baa2, its subordinated debt to Ba2 from Baa3, its preferred stock to Ba1 from Baa3, and its commercial paper to Prime-3 from Prime-2.

In March, Source One's parent, Fund American Enterprises, announced that it would pump about $130 million in capital into Source One. At that time, Source One's chairman, James H. Ozanne, said he hoped the infusion of capital would help to improve Source One's debt rating.

The company has also taken steps to lower costs. According to Fund American's latest 10-Q filing with the Securities and Exchange Commission, Source One laid off about 100 employees at the end of April. Source One officials did not return calls seeking comment.

Mr. Rouyer said even though Source One remains one of the largest mortgage banks-it was the 21st-largest servicer and 34th-largest originator last year-the company has had some "disappointing results over the last few years." Source One earnings fell 99% in the first quarter.

Source One was one of the five largest servicers in the early 1990s. But in 1994, Fund American tried selling it and then changed its mind.

In 1995, Source One sold $10 billion in servicing to NationsBank's mortgage unit. And last year Fund American had an agreement to sell Source One to Mellon Bank Corp., but Mellon pulled out of the deal.

"I think they have had trouble defining themselves in a changing and more competitive environment," Mr. Rouyer said.

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