NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded Nationstar Mortgage LLC's (Nationstar) U.S. residential servicer ratings as follows:
--Residential primary servicer rating for Alt-A product downgraded to 'RPS3+' from 'RPS2-', Outlook remains Negative;
--Residential primary servicer rating for subprime product downgraded to 'RPS3+' from 'RPS2-', Outlook remains Negative;
--Residential special servicer rating downgraded to 'RSS3+' from 'RSS2-', Outlook remains Negative;
--Residential master servicer downgraded to 'RMS2' from 'RMS2+', Outlook remains Stable.
The primary and special servicer rating downgrades are primarily due to the financial condition assessment of Nationstar as a stand-alone entity and to stresses observed in the company's operation, which Fitch believes are attributable to its high growth rate in recent years. The master servicing rating downgrade is primarily due to the financial condition assessment of Nationstar as a stand-alone entity. Previously, Fitch referenced the financial condition of the Fortress Investment Group (Fortress); Nationstar is majority owned by several funds managed by affiliates of Fortress.
The primary and special servicer rating downgrades as well as the Negative Outlook also incorporate internal audit findings and one Reg AB finding in conjunction with the company's aggressive growth strategy over the past several years in an environment of heightened regulatory scrutiny for the residential servicing industry. The primary and special servicer ratings also reflect the company's comprehensive servicing technology and improving internal control processes. The master servicer rating and Stable Outlook incorporate the company's established controls and processes for monitoring primary servicers.
As of Sept. 30, 2014, Nationstar's primary and special forward residential mortgage servicing portfolio comprised over 1,900,000 loans totaling $326.1 billion, an increase from approximately 972,000 loans totaling $173.9 billion as of Dec. 31, 2012. During 2013, Nationstar completed boarding the approximately 1,100,000 residential loans totaling $163 billion that it acquired from Bank of America. The forward mortgage servicing portfolio included over 178,000 Alt-A loans totaling $43.6 billion and 269,000 first- and second-lien subprime loans totaling $34.4 billion.
Nationstar is headquartered in Lewisville TX, with additional servicing sites in Chandler AZ, Littleton CO, and Scottsbluff NE. However, the company is in the process of closing down its Scottsbluff site and transferring the servicing functions performed there to its other locations. Nationstar uses an off-shore vendor in the Philippines to handle approximately 50% of its customer service calls and 33% of its collections calls. Nationstar also uses a vendor in India to handle a significant portion of its non-customer-facing functions.
Nationstar did not directly enter into consent orders or the national mortgage settlement (NMS), but services loans acquired from servicers that did. Beginning in January 2014, Nationstar is subject to oversight by the Consumer Financial Protection Bureau (CFPB). Nationstar has an independent compliance department to assist the operations with implementation of CFPB requirements.
During the current review period, Nationstar completed its initial 18-month internal audit plan that was implemented in the third quarter of 2012. The initial 18-month audit plan included audits of most high-risk areas in servicing. The internal audit reports reviewed by Fitch contained a number of high-, medium-, and low-risk findings that, in addition to one Reg AB instance of material non-compliance, had a negative impact on the assessment of the operational areas involved. Management stated that 50% of the high-risk internal audit findings had been previously self-identified by the business units, and that all but one of the audit findings as well as the Reg AB finding have been remediated through management action plans. Remediation of the remaining audit finding is expected to be completed by year-end.
Nationstar's master servicing operation is located in Littleton. As of Sept. 30, 2014 the master servicing portfolio comprised over 317,000 loans totaling $72.8 billion, a decrease from 387,000 loans totaling $104.7 billion as of Dec. 31, 2012. During the current review period, the master servicing operation performed 11 on-site reviews of primary servicers covering 98% of its portfolio. Fitch notes that the master servicing operation reports to the head of Nationstar's performing servicing area in the primary and special servicing operations, which presents a potential lack of independence regarding the oversight of Nationstar's own primary and special servicing operations.
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:
--'Global 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:
Applicable Criteria and Related Research:
Rating Criteria for US Residential and Small Balance Commercial Mortgage Servicers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=731747
Rating Criteria for Structured Finance Servicers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=731750
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=930435
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