Fitch Ratings has downgraded Nationstar Mortgage LLC’s U.S. residential servicer ratings due to financial conditions and operational stresses attributable to its high growth rate in recent years, the ratings agency announced recently.
Outlook remains negative as Nationstar’s residential primary servicer ratings for Alt-A product and for subprime product were both downgraded from RPS2- to RPS3+.
In addition, its residential special servicer rating was downgraded to RSS3+ from RSS2-, with outlook remaining negative.
As of Sept. 30, 2014, Nationstar’s primary and special forward residential mortgage servicing portfolio comprised more than 1.9 million 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 1.1 million residential loans totaling $163 billion that it acquired from Bank of America. The forward mortgage servicing portfolio included more than 178,000 Alt-A loans totaling $43.6 billion and 269,000 first- and second-lien subprime loans totaling $34.4 billion.
“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,” Fitch writes in a statement.
Headquartered in Lewisville, Texas, Nationstar has additional servicing sites in Chandler, Ariz., Littleton, Colo., and Scottsbluff Neb. 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. It also uses a vendor in India to handle a significant portion of its non-customer-facing functions, Fitch writes.
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.
In addition, Nationstar’s residential master servicer was downgraded to RMS2 from RMS2+, but outlook remains stable.
As of Sept. 30, 2014, the master servicing portfolio comprised more than 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. However, 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.”
Earlier this year, Nationstar Mortgage Holdings, Inc. (NYSE: NSM) confirmed it would no longer originate reverse mortgages through its Greenlight Financial platform, but would continue to service its Home Equity Conversion Mortgage servicing portfolio, valued at nearly $30 billion.
Written by Emily Study