S&P Offers Snapshot of Servicer Performance

Standard & Poor (S&P) has released the third in a series of biannual reports focusing on the loan servicing industry.  Its Servicer Evaluation Spotlight Report is designed to assist investors in assessing the performance of servicers along a full range of servicer metrics and to provide benchmarks for servicers to measure their own performance.

The report presents conclusions from the S&Ps servicer evaluation analytical methodology (SEAM) data collection process containing more than 4,000 fields of servicing data for each client.

The window for what S&P describes as a "snapshot" is the second half of 2008, a time of real upheaval in the industry.  S&P cites the many significant changes during that period including the enactment of several federal homeownership programs (the Troubled Asset Relief Program (TALF), Helping Families Save Their Homes Act, Hope for Homeowners (H4h) and Home Affordable Modification Program (HAMP)) and the FHA takeover of Freddie Mac and Fannie Mae.   S&P also references the many market factors including rising delinquencies and foreclosures, the number of homeowners who no longer have equity in their homes, and high unemployment which have made some borrowers ineligible for loan modification programs.

These forces, ongoing media coverage, and "regulatory and political pressures to stem the tide of foreclosures and preserve homeownership, have placed unprecedented focus on the mortgage servicing industry" the report says.

In addition servicers now have to keep abreast of ever-changing state and federal regulations seeking to protect the rights of homeowners while still trying to serve its investors by maximizing homeownership retention and minimizing losses.

S&P noted, however, that the current climate is benefitting servicers because of increasing recognition of the "often challenging and labor-intensive work that servicers do, especially with troubled assets."  S&P noted that the fact that various government-sponsored foreclosure prevention programs are offering incentives to lenders and servicers who complete successful modifications is, in part, in recognition of the "costly and difficult work that servicers provide."

The latest trend in the industry is what S&P called "high-touch" special servicing of troubled assets which requires eliminating mass production technology in favor of more individualized handing of borrowers at risk, a service that is particularly costly.  Servicers say that the days of 50 basis point servicing fees are in the past and performance-based incentives for such services are increasingly commonplace.

In compiling the report S&P says it tried to look at a variety of metrics to see how servicers were adjusting to all of these challenges and to a time of unprecedented market stress.  The metrics covered in the report include turn-over of staff, training in Fair Debt Collection Practices, Escrow Administration, ARM Resets, Loan Modifications, Los Mitigation, Collection, Foreclosure, Bankruptcy, and Real Estate Owned.  The data is segmented where appropriate into prime and sub-prime loan portfolios and the servicers are categorized as small, medium, and large based on the number of loans they service.

Servicers are not identified and the report suffers from the lack of summary charts or an executive summary.