Fitch Downgrades Nationstar's U.S. RMBS Primary & Special Svcr Rtgs; Affirms
Master Svcr Rtg
NEW YORK -- December 23, 2013
Fitch Ratings has taken the following rating actions on Nationstar Mortgage
LLC's (Nationstar) U.S. residential servicer ratings:
--Residential primary servicer rating for Alt-A product downgraded to 'RPS2-'
from 'RPS2', Outlook revised to Negative from Stable;
--Residential primary servicer rating for subprime product downgraded to
'RPS2-' from 'RPS2', Outlook revised to Negative from Stable;
--Residential special servicer rating downgraded to 'RSS2-' from 'RSS2',
Outlook revised to Negative from Stable;
--Residential master servicer affirmed at 'RMS2+', Outlook Stable.
The primary and special servicer rating actions are based on Nationstar's
internal audit, Reg AB and USAP findings in conjunction with the company's
aggressive growth strategy in an environment of heightened regulatory
scrutiny. The primary and special servicer ratings also incorporate the
company's effective default performance and comprehensive default servicing
technology. The master servicer rating action is based on strong master
servicing control processes and robust monitoring of primary servicers. All of
the servicer ratings incorporate the financial condition of Nationstar's
majority owner, a Fortress Investment Group company. Fortress Investment Group
is rated 'BBB'; Outlook Stable by Fitch.
Finally, the ratings also incorporate Fitch's overall concerns for the U.S.
residential servicing industry, which include 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.
Nationstar is headquartered in Lewisville TX, with additional servicing sites
in Scottsbluff NE, Littleton CO, and Chandler AZ. Since Fitch's prior review,
Nationstar closed the servicing sites in Houston TX and Indianapolis IN, and
opened the Chandler site. Nationstar also began outsourcing a portion of its
customer service calls to a vendor with operations located in Manila,
Philippines and a portion of certain back-office functions to vendors with
operations located in India. The company expects that the off-shore vendor in
Manila will handle approximately 50% of the customer service call volume.
As of June 30, 2013, Nationstar's primary and special servicing portfolio
comprised over 1,500,000 loans totaling $257.2 billion, an increase of 150%
from approximately 600,000 loans totaling $99.2 billion as of June 30, 2012.
The primary and special servicing portfolio included over 151,000 Alt-A loans
totaling $41.4 billion, 128,000 first and second lien subprime loans totaling
$19.2 billion, and over 65,000 loans totaling $12.3 billion in special
servicing. At the time of Fitch's review, Nationstar had completed boarding a
substantial portion of the portfolio of mortgage servicing rights (MSRs) for
approximately 1.3 million residential loans totaling $215 billion that it
acquired from Bank of America. This accounted for the majority of the
servicing portfolio growth since the prior review.
In 2011, Nationstar became the subservicer of the First Tennessee Bank
mortgage portfolio which was previously subserviced by MetLife Home Loans
(MLHL). MLHL's parent, MetLife Bank, NA, was under a consent order with the
office of the Comptroller of the Currency (OCC). In addition, Nationstar
acquired the residential mortgage servicing platform and assets from Aurora
Bank FSB in 2012. Aurora was under a consent order with the Office of Thrift
Supervision (now part of the OCC).
Nationstar implemented its initial 18-month internal audit plan in the third
quarter of 2012. Previously, the company relied on its quality assurance and
quality control functions to manage its internal control environment. The
initial 18-month audit plan includes audits of most high-risk areas in
servicing. At the time of Fitch's review, the company had completed
approximately half of the internal audits scheduled in the initial audit plan.
The internal audit reports reviewed by Fitch contained a number of high-,
medium-, and low-risk findings that, in addition to two Reg AB and two USAP
instances of material non-compliance, had a negative impact on the assessment
of the operational areas involved. Management stated that 80% of the high-risk
internal audit findings had been previously self-identified by the business
units. All of the audit findings have been addressed with management action
The Negative Outlook for the primary and special servicer ratings reflects
concerns over potential additional audit findings as Nationstar completes its
initial audit schedule, which may indicate operational stresses from the
company's aggressive portfolio growth while shifting to the use of more
off-shore resources in an effort to reduce servicing costs.
Nationstar's master servicing operation is located in Littleton and continues
with essentially the same management, staff, technology, and policies and
procedures that it acquired from Aurora Loan Servicing. During the current
review period, the master servicing operation performed 12 on-site reviews of
primary servicers covering 95% of its portfolio. The master servicing
portfolio comprised over 360,000 loans totaling $90.5 billion. The Stable
Outlook for the master servicing rating reflects the seasoned management and
staff, and effective technology and practices, in the master servicing
Fitch will continue to monitor Nationstar's operational performance as it
pursues its servicing initiatives in this high-delinquency environment.
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, 2011
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' (Aug. 13, 2010);
--'U.S. Residential and Small Balance Commercial Mortgage Servicer Rating'
(Jan. 31, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Structured Finance Servicers
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Fitch Ratings, Inc.
Thomas Crowe, +1-212-908-0227
Fitch Ratings, Inc.
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New York, NY 10004
Roelof Slump, +1-212-908-0705
Vanessa Purwin, +1-212-908-0269
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