Fitch Affirms Green Tree Servicing LLC's U.S. RMBS Servicer Ratings; Revises Outlook to Negative

NEW YORK--()--Fitch Ratings has taken the following actions on the U.S. residential primary servicer ratings for Green Tree Servicing, LLC (Green Tree):

--U.S. Residential primary servicer rating for prime product affirmed at 'RPS2+'; Outlook to Negative from Stable;

--U.S. Residential primary servicer rating for subprime product affirmed at 'RPS2+; Outlook to Negative from Stable;

--U.S. Residential primary servicer rating for HLTV product affirmed at 'RPS2+'; Outlook to Negative from Stable;

--U.S. Residential primary servicer rating for HELOC product affirmed at 'RPS2+'; Outlook to Negative from Stable;

--U.S. Residential primary servicer rating for second lien product affirmed at 'RPS2+'; Outlook to Negative from Stable;

--Special servicer rating affirmed at 'RSS2+'; Outlook to Negative from Stable.

The affirmation of Green Tree's ratings are reflective of the servicer's strong servicing operations evidenced by a robust risk management framework and strong management with long industry experience and company tenure. Additionally, the servicer continues to make enhancements to its technology while maintaining two servicing systems. The ratings also take into consideration the financial condition of Green Tree's parent, Walter Investment Management Corp (Walter), a non-publicly rated entity by Fitch, as financial condition is a component of Fitch's servicer ratings.

However, the Outlook revision is based on Green Tree's significant growth, elevated Fitch monitored servicing metrics, and integration of two impending mortgage servicing rights (MSRs) acquisitions. Additionally, Green Tree's pending litigation with regulatory bodies poses potential indeterminate risks to the servicer.

In 2013 Green Tree's portfolio experienced significant growth of over 100% by loan count, as the servicer boarded two large government sponsored enterprise (GSE) portfolios from the former bankruptcy estate of Residential Capital (Rescap) and Bank of America N.A (BANA). In aggregate the two portfolios comprised over 900,000 Fannie Mae loans. In addition, in March 2013, Green Tree purchased the servicing platform of MetLife Bank, N.A. (MetLife) in Irving TX, providing the company with additional infrastructure to support its portfolio growth.

In concert with the portfolio growth, Green Tree evidenced a 25% increase in full time equivalent (FTE) headcount over the review period. While the new hires possess a depth of industry knowledge, at the time of Fitch's review they had limited tenure of 10.5 months at Green Tree. Fitch expects that the company will be able to increasingly benefit from their enhanced staffing as their experience and tenure with Green Tree increases.

Green Tree has agreed to on-board an additional 400,000 loans beginning in 2Q'14 from two impending acquisitions: EverBank Financial Corp (EverBank) and a bank affiliated entity. While the bank transaction only includes MSRs, the EverBank transaction includes MSRs on approximately 100,000 loans and a subservicing contract for 79,000 loans. Additionally, the transaction includes Green Tree hiring approximately 500 employees from EverBank along with the default-servicing platform and building space. The newly hired employees comprise call center agents, default servicing staff and managers, including the head of default servicing and will be located in Jacksonville, FL. Additionally, management indicated the intellectual capital acquired from EverBank is anticipated to augment Green Tree's previously purchased MSP platform from the former MetLife transaction.

Green Tree has provided Fitch with its strategic plan for the assimilation of new staff, technology integration and loan boarding. Fitch's observations of such integrations indicate that performance challenges regarding systems, people, and customers may be expected. Additionally, as evidenced in Green Tree's call center metrics over the review period, abandonment rates and speed to answer data both increased over the past 12 months, reflective of the portfolio transfers in 2013. Fitch anticipates these metrics may continue to be pressured with the impending portfolio transfers. Green Tree management stated they have anticipated increased call center activity and hired staff in excess of immediate need.

On Feb. 20, 2014, the Federal Trade Commission and Consumer Financial Protection Bureau staff advised Green Tree that it has sought authority to bring an enforcement action and negotiate a resolution related to alleged violations of various federal consumer financial laws. Green Tree has indicated to Fitch they are co-operating with the investigation. However, the servicer does not have sufficient information to evaluate the merits of the potential enforcement action or to make an assessment of the likelihood or cost of any such resolution.

Finally, the ratings reflect Fitch's overall concerns for the U.S. residential servicing industry. Chief among them is the ability to maintain high performance standards while addressing the rising cost of servicing and changes to industry practices, mandated by regulators and other parties.

As of Dec. 31, 2013, Green Tree's servicing portfolio consisted of 1,880,958 loans with an unpaid principal balance (UPB) of approximately $193 billion. The portfolio, by loan count, is composed of 63% agency product (including prime), 17% manufactured housing product, 14% closed-end second product, 5% subprime product, and 1% HELOC and High Loan to Value. The portfolio by UPB is composed of 86% agency product (including prime), 5% manufactured housing product, 4% closed-end second product, 5% subprime product and less than 1% HELOC and High Loan to Value.

Green Tree's corporate headquarters are located in St. Paul, MN. The company has a total of four servicing locations including Rapid City, SD, Fort Worth, TX, Irving, TX and Tempe, AZ. Green Tree also maintains 18 regional offices.

Fitch rates residential mortgage primary, master, and special servicers on a scale of 1 to 5, with 1 being the highest rating. Within some of these rating levels, Fitch further differentiates ratings by plus (+) and minus (-) as well as the flat rating. For more information on Fitch's residential servicer rating program, please see Fitch's report 'Rating U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria', dated Jan. 31, 2014 which is available on the Fitch Ratings web site at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Rating Criteria for Structured Finance Servicers' (Jan. 31, 2014);

--'U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria' (Jan. 31, 2014).

Applicable Criteria and Related Research:

Rating Criteria for Structured Finance Servicers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=731750

U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria -- Effective January 31, 2011 to January 30, 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=600065

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826535

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Contacts

Fitch Ratings
Primary Analyst:
Natasha Hanson, +1-212-908-0272
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Roelof Slump, +1-212-908-0705
Managing Director
or
Committee Chairperson:
Grant Bailey, +1-212-908-0544
Managing Director
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
sandro.scenga@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Natasha Hanson, +1-212-908-0272
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Roelof Slump, +1-212-908-0705
Managing Director
or
Committee Chairperson:
Grant Bailey, +1-212-908-0544
Managing Director
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
sandro.scenga@fitchratings.com