As a teacher, the problem withassessments is that they are affected by the child's mood on the given day they are testing. If mom has just recently come back and then the problems started at school, then your granddaughter is suffering emotional problems and doesn't know how to process this new living situation and it had taken its toll on her comprehension. more than likely it is not a loss of skill but a problem with the assessment and her mood when they were given.
I agree with Annie, and find this a big concern.
Sometimes kids have a standstill in learning, sometimes they grow at a slower rate than before, but it's a huge concern when a child actually loses learned skills.
So. Do you trust the testing method used, that last year found her reading at a 5th grade level, and now has assessed her accurately as reading at best on a 2.4 grade level?
I would think that would set of sirens in the school, and they would want her further tested.
Do you think her mother is harming her, inadvertently or otherwise? It certainly is an obvious regression, which a child can do when stressed or anxious. Is she afraid she will be taken away from you?