Servicer Evaluation: Homeward Residential Inc.
|Publication date: 18-Jun-2012 14:34:08 EDT|
Standard & Poor's Ratings Services' servicer rankings on Homeward Residential Inc. (formerly American Home Mortgage Servicing Inc.) are ABOVE AVERAGE for residential prime mortgage loan and residential subprime loan servicing. Our rankings for Homeward Residential as a residential special loan servicer and residential subordinate-lien servicer are AVERAGE. The outlook for the prime mortgage, subprime mortgage, and subordinate-lien servicing is Stable. The outlook for American Home as a residential special loan servicer is Positive.
The rankings reflect, in our view, Homeward Residential's substantially seasoned management team, comprehensive and timely training programs and employee development curriculum, an efficient technology environment, along with sound audit, quality control, and risk assessment methodologies and processes. The company has added experienced new management in several areas, including a new president and loan servicing manager and continues to enhance its training regimen. Homeward Residential also continues to monitor and invest in systems that improve workflow efficiency between its domestic platforms and offshore operations, and look for additional ways to improve management reporting and portfolio data analytics. Homeward Residential's multiple servicing sites in the U.S., Mexico, and India provide for a balanced workflow and efficient leverage and disaster recovery.
Homeward Residential remains successful in meeting the demand for default management personnel (both supervisory and staff) commensurate with the significant increase in loss mitigation activity, loan defaults, and asset disposition. The organization continues to seek opportunities to grow portfolios and has developed an origination division. The company has, in our view, experienced senior management and staff with the specific skills and experience needed to perform the necessary default management and "high touch" servicing required. In our opinion, Homeward Residential's default management loss mitigation and homeownership retention performance remains sound and compares favorably with similarly situated peers as evidenced by metrics provided in S&P's Servicer Evaluation Analytical Methodology (SEAM) semiannual data collection survey and general industry performance metrics.
The outlook on the servicing operation is stable. Over the past several years, Homeward Residential has stabilized and maintained its portfolio size by boarding small amounts of loans acquired and transferred from other servicers to offset runoff of its own portfolio. This caused only moderate reductions in the size and volume of its prime and subprime portfolios. Since our last review, the company began developing a portfolio of distressed loans and the special mortgage loan portfolio has grown.
Executive management has focused on its primary function and, in our opinion, has been proactive in maintaining staffing and efficiency by emphasizing default management and home retention efforts. According to the U.S. Treasury, Homeward Residential continues to perform adequately in the Home Affordable Modification Program (HAMP). Moreover, management has remained proactive in its default management efforts and, although not a part of recent regulatory consent orders or attorneys general settlements, the company has amended policies and procedures where necessary to remain compliant with the terms of those agreements, including the development of a single point of contact (SPOC) program. In our view, management continues to be diligent in accommodating borrower needs and minimize investor risk. Standard & Poor's believes Homeward Residential has a sound mortgage loan servicing operation. We believe the company continues to make major investments in technology and enhance already robust internal controls and governance, and maintains robust policies and procedures.
In our view, the company will remain an effective servicer of prime, subordinate-lien, subprime, and distressed mortgage loans. Moreover, we believe the company remains poised and ready for additional growth.
WL Ross established American Home Mortgage Servicing Inc. in November 2007 when he purchased the servicing operations of the former American Home Mortgage Corp. from bankruptcy. He then acquired Option One in April 2008. The consolidated operation is now headquartered in Coppell, Texas, which contains the largest percentage of staff. The company maintains a second domestic site in Jacksonville, Fla. and is developing a third domestic platform in Addison, Texas, not far from its headquarters. The Addison site allows Homeward Residential to leverage the experienced mortgage and call center personnel in the greater Dallas area. This office also serves as a redundant site for disaster recovery and business continuity. The company closed a legacy Option One platform in Irvine, Calif. and moved most of those functions to the Coppell headquarters. The company also has an office in Pune, India, where the staff continues to grow. Homeward Residential also utilizes a third-party vendor for a call center facility in Guadalajara, Mexico. The servicer employs approximately 2,880 people worldwide. Overall, we believe senior leadership remains effective. As of Dec. 31, 2011, the company's senior management team averaged 21 years of industry experience and just over four years with Homeward Residential.
In our opinion, the company maintains considerable expertise in servicing assets of lower credit quality. Alternative-A (Alt-A) loans represent 63% of the prime loan portfolio when measured by units and 68% when measured by unpaid principal balance.
Management And Organization
Our subranking for management and organization is ABOVE AVERAGE.
Management and staff recruitment, development and training
We believe Homeward Residential has a well-seasoned management team with manageable turnover rates, contributing to a very stable loan servicing environment. In addition to the above-mentioned experience levels, front-line managers and supervisors are also well seasoned, averaging 13 years of industry experience and approximately five years tenure with the company. In our opinion, annualized turnover rate for management is good at 5%. Staff turnover, however, is somewhat elevated at 36%, some of which can be attributed to the closing of the Irvine site.
Homeward Residential continues to promote and support what we believe to be a highly effective training environment at its corporate and departmental levels. In fact, we believe the company has made more enhancements to training and development over the past 12-15 months. In our opinion, the training curriculum remains well structured and comprehensive, with intranet and classroom courses that are designed for new hires and existing staff. The company has added desktop software to its training regimen, allowing staff to train at convenient times throughout the day. Homeward Residential tailors instruction for specific roles and job functions. Specific position profiles identify the skills and qualifications necessary for job success. Homeward Residential's learning and development programs are engaging, focused, and adaptable to changes in the market. Characteristics of Homeward Residential's training program include:
- New-hire training increased to 163 hours;
- Additional customized workshops based on business needs;
- An additional 122 hours(up 40 hours since our last review) of specialized instruction for new customer service employees and collection staff, followed by 40 hours of on-the-job training for employees of both areas;
- Career planning opportunities are available and encouraged to all interested staff; and
- Training and certification on the Fair Debt Collection Practices Act, along with refresher courses.
We believe Homeward Residential's combination of structured classroom instruction, on-the-job training, call monitoring, quality assurance oversight, coaching and mentoring, and external seminars provide an excellent and varied methodology for ensuring that all staff members are well versed in company policies and procedures. In our view, Homeward Residential's comprehensive training regimen develops and maintains a professional and knowledgeable workforce and provides guidance needed to service distressed loan portfolios.
In our view, Homeward Residential enhanced its compliance department over the past 15 months. Since our last review, Homeward Residential divided the servicing compliance department into core servicing and default servicing for better risk aversion. Overall, the department provides compliance oversight and manages relations with regulatory agencies. We believe the company's compliance department's organizational chart is effectively developed and adequately staffed. The compliance area:
- Monitors and provides guidance regarding applicable federal and state laws and regulations;
- Works with business units to develop compliant products and services, policies, and procedures;
- Works closely with management and staff to make effective changes to company policy, procedure, and systems as necessary to comply with applicable laws and regulations;
- Develops and maintains regulatory policies and state specific matrices for the company's online reference library;
- Manages compliance oversight by utilizing a compliance exception reporting function; and
- Tracks, reviews, and analyzes legislative and regulatory updates and sends results to appropriate management and staff.
We believe Homeward Residential has a sound overall corporate governance including legal, audit, and compliance divisions. This area, with a staff of approximately 56 attorneys, paralegals, and assistants, comprise four separate units: litigation management, servicing legal and compliance, corporate transactional management (including corporate contracts and vendor management), and internal audit. The legal, audit, and compliance areas manage the legal, regulatory, and reputational risks. In addition, they support business activities by providing legal and regulatory compliance counsel to management and staff. The chief legal officer, who has more than 31 years of relevant experience, also serves as Homeward Residential's general counsel and corporate secretary. He manages all matters regarding corporate formation and governance, including compliance with all applicable federal and state laws, rules, and regulations. This individual has an overall responsibility for all matters regarding legal, compliance, corporate communications, and corporate policies and procedures, as well as administrative responsibility for internal audit (functionally, the corporate audit function continues to report to Homeward Residential's board of directors).
Standard & Poor's believes Homeward Residential's internal control management is robust and effective, with a multitiered risk mitigation team that includes quality control, quality assurance, and internal audit functions. A separate policy and procedures department documents and manages the company's formal policies and procedures and assures compliance with frequently changing federal and state laws and regulations.
Homeward Residential develops and updates policies and procedures when necessary in coordination with the compliance, internal audit, and business units. These policies and procedures provide the structure for the internal control vision, enforce observance of legislative and internal audit control requirements, ensure audit trail of documentation/publication approval for reporting and litigation, and safeguard the company's intellectual property. Senior managers must sign off on all procedure updates. All pooling and servicing agreements are imaged and a matrix summary of each agreement is retrievable online.
The company's in-depth and multitiered audit and risk assessment/quality control structure helps the staff identify and mitigate risk of loss to investors. The quality control staff is independent of the business units and reviews compliance, risk, and procedures. The company designed the quality control reviews to satisfy traditional risk assessment and performance methodology, including the following procedures:
- The quality control staff performs monthly and quarterly audits of virtually all areas of loan servicing;
- The reviews are detailed and designed to ensure that staff is properly performing assigned duties in accordance with stated policies and procedures;
- Weekly loan-level and summary reports and an overall monthly summary report is distributed to senior management and the corporate audit group;
- The results are reviewed and discussed with management monthly;
- The quality control review schedules are risk based;
- The quality control process can review loan-level and/or associate specific processes; and
- The results of the periodic quality control reviews are shared with the internal audit department.
Internal control oversight includes specifically designed management reporting. Intelligence gathered and reported includes:
- Reporting to provide and support current and future goals and objectives of the organization;
- Dashboards and scorecards to measure and benchmark performance;
- Reporting on historical performance that affect portfolio performance;
- Data governance to ensure data integrity, quality, and consistency;
- Predictive analytics and trending; and
- The monitoring of special projects.
A senior vice president with what we believe is relevant experience, appropriate knowledge, and company tenure, continues to manage strategic initiatives and overall quality control. This unit reports directly to the company's EVP/chief servicing officer. A separate quality assurance function focuses on nonvoice functions and transactions. Nonvoice quality assurance, based on reviews at the associate level, provides immediate feedback to both the associate and department supervision.
Process improvement includes Six Sigma concepts and theories. Quality control's reviews and the reports submitted to management often drive process improvement.
An executive vice president/chief administration officer, with 26 years of relevant industry experience, manages the corporate administration area, which is responsible for vendor management. This group is responsible for all vendor relationships, including offshore contractors. Duties include acting as the SPOC between Homeward Residential and external vendors, updating and executing contractual agreements with vendors as needed, conducting monthly trend analysis reporting, assessing vendor safeguards to ensure data privacy, implementing a formal annual vendor review process, and ensuring vendor compliance with the company's internal objectives as well as Regulation AB and USAP standards. The company's chief technology officer reports to corporate administration.
An experienced professional with more than 32 years of accounting, auditing, and management experience including a similar role at other large mortgage servicers, continues to manage the corporate internal audit function. The internal auditor has been with Homeward Residential for approximately four years. In our view, the company continues to enhance its internal audit function by hiring additional experienced auditors and the continued development of the overall audit program. The audit plan provides senior management with an independent assessment of the internal control environment by performing frequent risk-driven audit reviews and through involvement in company initiatives. The internal auditor has an administrative reporting line to the company's chief legal officer; however, the internal audit and results thereof are reported directly to the company board of directors. Professionals with significant experience in the mortgage banking business manage audit reviews, which are conducted in accordance with professional auditing standards. In addition to the department's director, the internal audit staff now includes 11 auditors, all of whom are sufficiently experienced in our opinion. Three senior audit managers average over 15 years of relevant experience. Most of the auditing employees hold pertinent professional certifications including CPA, CIA, or CISA designations. The audit staff primarily operates in Coppell, Texas, however, there is audit staff in Pune, India.
In our opinion, the company's internal audit program utilizes an effective audit software management system that maintains the audit schedule. Follow-ups further fortify Homeward Residential's internal audit program. The software system consists of five key components that are part of an integrated tool set.
The internal audit management team performs the following:
- Conducts an annual risk assessment of the areas that comprise the complete set of business functions;
- Presents an annual risk-based audit plan;
- Develops and executes a cyclical audit program that reflects the complexities, risks, regulatory, and market environment of Homeward Residential's activities;
- Coordinates with business unit and supports group management throughout the year to understand and incorporate new initiatives and changing risks into review activities;
- Actively participates in new initiative planning, special projects, and investigations, and communicates the nature and statuses of these activities;
- Communicates findings and recommendations to management upon completion of work, and escalate findings if necessary;
- Issues audit reports and reports the status of corporate audit activities on a regular basis;
- Follows up regularly on open audit findings and action plans with business management;
- Coordinates closely with external auditors; and
- Ensures appropriate staffing levels, skills, and development to accomplish objectives.
Planning and performing audits include overall consideration of the current business, market, and regulatory environment, the product or process complexity and operating risk, the nature and clarity of current control processes, the extent of automation and technology controls, and the availability, monitoring, and management review of key information. Planning also includes risk-based scoring, control identification and evaluation, testing and reporting, and follow-up audits of individual areas.
Homeward Residential structures all audit reports to ensure that it follows prudent loan servicing practices, the right policies and procedures are in place, and to verify compliance with regulatory and investor guidelines. We believe the audit program and staff is sound and effective. We reviewed the internal audit reports Homeward Residential produced since our previous review and found the reports to be very comprehensive. Audit findings were succinct and effectively prepared. The company addressed findings with the appropriate management and responses from management were, in our opinion, appropriate and effectively tracked.
There were no issues or findings in the Regulation AB Audit and Attestation prepared by an external auditing firm for the calendar year 2011.
The company holds monthly risk management meetings to discuss any reviews conducted by the operational analysis review staff, recent findings or updates from the legal and regulatory compliance groups, and to review regulatory complaint trends and potential fraud cases. The chief operating officer, his direct reports, legal/compliance management, and internal audit management attend these meetings.
In our view, Homeward Residential operates in a sophisticated technology environment. The company's chief technology officer has more than 24 years of relevant experience. Her direct reports manage data services, technology infrastructure services, network engineering, call center technology, end user computing, and the user supported helpdesk. The company continues to invest in technology and offshore enhancements for optimum cost benefits by developing technology services that support a growing employee base. The technology staff, both domestic and offshore (India), totals approximately 66 employees. There are 47 employees in the U.S. and 19 in Pune, India. Homeward Residential currently uses the following system architecture for business operations and data recovery:
- The company's primary loan servicing system, LPS, houses loan-servicing records;
- The servicer uses Aspect Workforce Management for scheduling, Cisco ICM for call routing, Unison for predictive dialers, and Verint for call recording and screen monitoring to provide training opportunities and improve staff quality;
- Strict controls are in place for security, change management, and business continuity to ensure uninterrupted operation;
- The company Web site enables online mortgage payments, educates borrowers on home retention, provides access to account history, and provides requests for reinstatement and payoff statements;
- Appropriate ancillary systems can interface securely and effectively, enabling extended vendor services such as default attorneys to have access;
- Enhanced interactive voice response unit capabilities have improved call routing, customer care, and default management effectiveness;
- Homeward Residential currently has a dedicated information security staff of eighteen employees;
- The primary data center, now in Texas, replicates critical databases to the secondary center in Addison, Texas, using NAS and SAN technologies;
- We believe the primary and secondary data centers have sufficient environmental and mechanical controls, including UPS battery backup and backup diesel generators, which are monitored via network operation centers and digital video recorders;
- The servicer uses DARES, a proprietary system, for default management;
- The company backs up, encrypts, and stores data off site;
- Homeward Residential uses imaging for easy access to legal documents and desktop faxing;
- Homeward Residential uses a voice response unit (VRU) for automated customer information retrieval;
- The servicer uses autodialer technology to build, load, and track calling campaigns on delinquent loans; and
- The servicer uses Genesis to provide an automated electronic data interchange (EDI) interface with major mortgage insurance companies to file claims.
The DARES default system provides integration between early- and late-stage collections and automates loan modifications, short payoffs, and deeds-in-lieu. The software provides sophisticated resolution model logic and displays critical notifications, such as foreclosure sale dates and state-specific guidelines. It also likely reduces associates' average handle times and increases one-call resolutions.
Homeward Residential's disaster recovery site is now in Addison, Texas, not far from the main office but on a separate power grid. There is a redundant network infrastructure and redundant call center and imaging systems at this site. The company tests the disaster recovery plan at least annually. The company last tested the disaster recovery plan in September 2011 (dialer failover) and December 2011 (Addison/Coppell redundancy testing). There were no issues noted. The company's business continuity plan meets Federal Financial Institutions Examination Council (FFIEC) guidelines. In our opinion, Homeward Residential's technology infrastructure and its disaster recovery and business resumption plan are well designed and appropriate to manage the company's loan portfolio.
The subranking for the prime and subprime loan administration is ABOVE AVERAGE. The subranking for special and subordinate-lien loan administration is AVERAGE.
Dave Applegate, president and CEO, now oversees the company's overall operations. Mr. Applegate joined Homeward Residential in the fourth quarter of 2010 and has more than 21 years of industry experience. Homeward Residential also hired a new executive vice president/chief servicing officer, a seasoned manager with more than 25 years of relevant industry experience at other major loan servicing operations and one of the GSEs. According to SEAM, as of Dec. 31, 2011, the company serviced a portfolio of approximately 203,000 prime mortgage loans representing a total unpaid principal balance (UPB) of approximately $43.4 billion, 147,000 subprime loans with an aggregate UPB of approximately $24 billion, a small but growing portfolio of residential special mortgage loans of approximately 14,000 loans with and aggregate UPB of $3 billion, and a subordinate-lien mortgage loan portfolio totaling just over 11,000 loans with an aggregate UPB of approximately $465 million. The subordinate-lien loan portfolio is diminishing in size, both units and UPB. The largest concentrations of prime and subprime loans, measured by UPB, continue to be in California, Florida, and New York.
Standard & Poor's reviewed all aspects of loan servicing, but focused on customer service, collections, overall default management, loss mitigation and loan modification efforts, foreclosure timeline management, and asset recovery functions. Key risk areas are discussed in more detail.
New loan boarding
The company has the following data integrity controls in place for adding or acquiring new loans:
- Extensive data scrubbing is performed and exception reports are reviewed for incorrect data;
- Loans are typically boarded in one day;
- There is 100% data upload and 100% quality control (document to system check) on all new loans; and
- All key loan documents are imaged and stored online for efficient research/retrieval.
Cash management and investor accounting
In our opinion, Homeward Residential continues to maintain an efficient cash management operation, incorporating good internal controls to minimize risk. The payment processing function includes the following features:
- The lockbox capture rate remains sound and peer competitive at approximately 94%;
- We believe total overall auto-posting of monthly payments is effective at 85%;
- Annualized turnover rate of cashiering staff is reported to be 11%;
- Homeward Residential uses Planet code tracking to update the system for payments in transit;
- Dedicated posting personnel apply bankruptcy payments. For multi-account payments sent by transmittal, the staff access instructions using the bankruptcy trustee Web sites. For individual account payments, the cashiering area relies on payment application advice from bankruptcy department staff; and
- In our view, Homeward Residential has an appropriate level of security in its payment posting area, including employee card key access.
Investor remitting, reporting, and account reconciliation is controlled to minimize loss risk. The following risk management methodologies are in place:
- Homeward Residential has an appropriate segregation of duties among staff handling remitting, reporting, and bank account reconciliation functions.
- Homeward Residential conducts all of its investor reporting and remitting (100%) via electronic means.
- A client relations staff assists investors, master servicers, and trustees;
- A dedicated staff, separate from reporting and remitting functions, reconciles custodial accounts monthly;
- Homeward Residential offers online access to bank account statements to facilitate the daily and monthly reconciliation process; and
- Management reviews bank account reconciliations and investor reports.
Customer relationship management
A seasoned individual, with approximately 28 years of industry experience and more than six years with Homeward Residential, manages the company's contact center operations. Call center employees are located in Dallas, Pune, India (Homeward Residential staff), and Guadalajara, Mexico (vendor staff). In our opinion, the company has established appropriate standards for its customer care employees and provides an effective level of customer service. Homeward Residential's customer service initiative is fully automated and utilizes a voice response unit (VRU) to provide account-level data to customers. An automated call distribution (ACD) system efficiently routes call volume to appropriate cues. Customer service agents also assist with early stage delinquencies. The company reports that call center staff, who provide customer service and early stage collections, consists of approximately 242 employees as of Dec. 31, 2011. Homeward Residential provides an effective level of service to its customers as indicated by the following:
- The vendor reports an abandonment rate of 1.00% and average speed of answer of 15 seconds;
- The turnover rate among the vendor's staff while high, is improved and now measured at 58%;
- The company's overall VRU capture rate has improved and is now 48%;
- The company performs trending analysis on VRU routing to identify problem issues and measure overall VRU efficiency;
- A research department of approximately 100 full-time staff assists the customer care effort;
- The VRU is bilingual and available 24/7;
- The overall blended in-house average speed of answer is 16 seconds and the abandonment rate is 2%. Calls are routed to the next available agent based on skill;
- The first call resolution rate is marginally improved at 69%;
- The company monitors call center staff with three formal call monitoring sessions per representative per month. An average of 10 calls is graded per month and supervisors provide performance feedback. All calls are recorded;
- The annualized turnover rate among Homeward Residential customer service staff of 25%, an improvement from previous years;
- In our view, the hours of operation are sufficient to handle inbound calls. The call center is open from 7 a.m. to 9 p.m. Central Standard Time Monday through Friday, and 7 a.m. to 4 p.m. on Saturdays;
- In addition to Spanish speaking agents, the company utilizes a vendor service/language line for all other non-English speaking borrowers;
- The servicer successfully installed Aspect dialer and IVR;
- The company's Robust quality assurance monitoring includes screen capture and monthly coaching;
- Advanced skill-based and delinquency routing logic delivers borrower calls to the correct associate;
- The company's Web site to allows borrowers to track loan modification status;
- An IVR provides borrowers with advanced payment options, updated loan account information, and third-party routing to improve service; and
- A dedicated research and correspondence unit handles written correspondence and tracks it to ensure RESPA compliance.
The company has controls in place for mortgage reconveyance processing, in its effort to reduce risk of loss due to failure to comply with state reconveyance statutes. The company reports more than 99% payoff quote completion rate per state guidelines. A rules-based system delivers payoff statements within 24 hours and the reconveyance documentation rejection rate is an efficient 4%.
We believe Homeward Residential operates a well-controlled escrow administration area that benefits from the company's highly effective oversight of third-party vendor relationships for hazard insurance and real estate tax bill procurement. The company collects escrow funds on more than 80% of the combined portfolio and has implemented the following controls:
- Homeward Residential fully outsources real estate tax bill procurement as well as hazard and flood insurance policy procurement via vendor relationships.
- Homeward Residential performs on-site business reviews of vendors annually (more often in some cases), generating vendor scorecards to monitor performance according to agreed-upon service levels;
- Homeward Residential performs an escrow analysis annually in accordance with RESPA guidelines;
- When loans without escrow are modified, the company requires or encourages borrowers to add escrow funds to their monthly payments;
- Vendors perform letter and calling campaigns before and after the expiration of insurance and tax items for both escrow and nonescrowed items;
- There have been no nonreimbursable tax penalties reported;
- Lender-placed hazard insurance coverage represents approximately 11% of the combined portfolios;
- The lender-placed insurance cancellation rate is only 4.3% and the renewal rate is measured at approximately 50.1%, evidencing an effective escrow administration. Lender-placed flood insurance coverage represents approximately 2% of the combined portfolios; and
- The vendors review insurance carrier ratings to ensure sufficient claim paying ability in the event of a hazard or flood insurance loss.
Homeward Residential's subordinate-lien portfolio continues to diminish in size, primarily reflecting the industry's reduced production of these types of loans. Nevertheless, management continues to use sound practices and policies to effectively service subordinate-lien products. The company has appropriately aggressive collection timelines and maintains comprehensive policies and procedures for subordinate-lien loan administration.
Homeward Residential staff tracks junior liens to determine when to proceed with foreclosure based on various factors, including the availability of loss mitigation options, the potential for litigation, and equity amount. The group determines whether there is sufficient equity that will ultimately guide the bid amount and decision-making process (regarding foreclosures and principal reduction of second liens).
In our opinion, Homeward Residential continues to effectively manage collections and default management. We believe the company's default management process is led by a team of significantly industry experienced personnel. The collections effort is bifurcated between the early intervention group (representing up to 60-day delinquencies) and the home retention group (later stage collection and loss mitigation efforts). The early stage collection staff for the combined prime and subprime portfolios now totals approximately 242 employees and is supported by customer care call center staff employees. Early stage staff members are stationed in Coppell, Addison, Jacksonville, Pune, India, and Guadalajara, Mexico. Key characteristics of what we believe is an effective approach to first-lien collections include:
- Appropriate collection timelines for all products based on home retention, investor requirements, and overall prudent loan servicing practices;
- Managers average approximately 12 years of industry experience and approximately six years of tenure with Homeward Residential. Collectors average nine years of industry experience and approximately three years tenure with Homeward Residential;
- Early stage collection strategies include dialer technology, dialer development, workforce management, and contact management. All calls are recorded;
- A quality management system enables call and screen monitoring and quality control;
- Borrowers can make up to two monthly payments using the IVR;
- Homeward Residential continues to participate in HAMP, HARP, and HAFA;
- Collection activities include state-specific notices and calling campaigns;
- Delinquent borrowers are automatically routed to a collection representative from the VRU;
- Homeward Residential uses evening and weekend hours in order to cover the geographically diverse portfolio;
- Homeward Residential uses advanced skill-based and delinquency routing logic to direct inbound borrower calls to the right associate;
- The servicer utilizes a mystery shopper program. Monthly performance reviews include quality and productivity;
- Homeward Residential monitors 10 counselor calls per month;
- Outbound calls can begin as early as day one of delinquency;
- Homeward Residential uses the outbound dialer, with upgraded technology, until the 29th day of default. Outbound calls are based on default risk/best time to call analytics. Risk modeling and early indicator scoring is a part of early stage strategy and results in a focus on higher risk borrowers;
- The servicer orders a LexisNexis search by day 22 of default if it determines that the phone number of record for a borrower is not valid. Property inspections follow, beginning at day 45 of default and Homeward Residential sends special offers as incentives for borrowers to call if a phone number is not found;
- The average speed of answer and abandonment rates for inbound collection calls are now measured at 16 seconds and 2% respectively;
- The promise to pay success rates in the 30th day and 60th day delinquency buckets are 87% and 78%, respectively.
- Homeward Residential uses best-time-to-call methodology;
- Loss mitigation counseling can commence at any time; and
- The company experiences the following success with loss mitigation packages sent to borrowers: approximately 29% of offers for short payoffs sent to borrowers were returned, and of that percentage, 56% were closed. Of the approximately 50,000 modification packages sent to borrowers, 68% were returned and of that percentage, approximately 39% (13,463) were closed.
Homeward Residential continues to expand its home retention and preservation group and has dedicated 127 SPOC employees to assist with collection and loss mitigation efforts. This unit continues collection efforts and is responsible for workout processing, customer negotiation, home preservation, Hope Now/Outreach, and counseling agency interaction. Efforts used to maximize loss mitigation, loan reinstatements, and/or modifications include:
- Gain/loss analysis;
- Implementation of a uniform income/expense calculation sheet for use in determining modification strategy;
- Use of a third-party vendor to review loans denied for a modification and determine if the loan is eligible for a "short sale" solution;
- The number of employees now assigned to late stage collections (60-plus-days delinquent) is 184 and there are approximately 530 staff assigned to overall loss mitigation efforts;
- Continued associations and coordination with Hope Now, and other community groups and outreach organizations and a dedicated toll-free number, fax number, and e-mail addresses for the nonprofit and advocacy groups;
- Continue to use of a third-party vendor to expand modification and short sale offers to borrowers in bankruptcy; and
- Junior-lien monitoring.
The staff members in the company's home retention contact center use what we believe to be effective processes to mitigate losses by implementing loan modifications, establishing forbearance plans, and/or encouraging short sales and deeds-in-lieu of foreclosure to minimize the expenses associated with foreclosure and real estate liquidations. The company has said it uses creative methods to reach borrowers and sends follow-up packages that include advice regarding the receipt of a loss mitigation package, the completeness of a package, and the status of the loan modification. The percentage of short sales to total workouts continues to increase. Efforts are facilitated by a centralized mitigation intake and follow-up. Over the latter half of 2011, Homeward Residential:
- Sent solicitations to all HAFA eligible borrowers;
- Solicited almost 15,000 HAMP modification plans. Of the total number of HAMP modifications offers returned by eligible borrowers, Homeward Residential approved more than 90%;
- Converted, n average, more than 80% of trial HAMP modifications to permanent modifications;
- Underwrote HAMP modifications 33 days of receipt of a full package from the borrower;
- Offered more than 30,000 non-HAMP modifications June-December 2011, of which approximately 16,000 offers were returned and on average approximately 70% of returned offers were closed;
- Participated in approximately 250 preforeclosure and 1,550 in-person outreach mediations in the latter half of 2011.
Associate development remains an important component of Homeward Residential's loss mitigation/home retention efforts, and the servicer states that it conducts continuous coaching and feedback sessions. In addition to what the company provides during orientation, management offers continuous leadership development, state-specific training provided by an outside attorney network, and online investor-specific training. The company hosts weekly process sessions, update forums, and provides continuous coaching and feedback sessions. Each associate receives approximately 188 training hours after orientation, including mentoring and team meetings.
Homeward Residential uses its proprietary system, DARES, to help manage its default operations, loss mitigation, and home retention operations. DARES provides a seamless integration between early collections and loss mitigation staff.
Homeward Residential completes approximately 3,500 workouts per month (all loan types), and the vast majority are loan modifications.
Homeward Residential continues to maintain adequate staffing to properly manage the increase in delinquencies and default management challenges:
- Management in this area average a little more than 13 years industry experience;
- Loss mitigation/home retention counselors average ten years experience;
- Homeward Residential has introduced an outbound IVR application to aid and expedite the recovery of missing or incorrect modification documents; and
- All loan modifications require an escrow account post-closing.
Homeward Residential has observed solid results in the implementation and cure rate of loss mitigation forbearance plans. The monthly break-rate in each category of the forbearance plan is quite low, and the ultimate recidivism rate compares favorably with industry standard and the company's SEAM peer group. For example, the recidivism rate for forbearance workouts that cure and redefault within six months is 38% for prime loans, 32% for subprime loans, and 17% for special loans. The recidivism rate for residential loan modifications closed in 2011 are 17%, 21%, and 20% for prime, subprime, and special loans, respectively.
Loss mitigation activities continue throughout the foreclosure process. The company designed its loan workout activities to minimize risk of loss to investors, while simultaneously adhering to timelines that is critical to the foreclosure process and maximizing the possibility that a borrower can maintain their home. Homeward Residential proactively monitors its foreclosure and bankruptcy caseload to maximize performance and minimize risk of loss. The following procedures and controls are in place:
- 35 employees are assigned to foreclosure administration;
- Foreclosure management has 12 years of industry experience and approximately two years of tenure with Homeward Residential. Counselors have more than 11 years of industry experience;
- Most communication between the servicer's foreclosure administration staff and the vendor attorneys hired to foreclose on behalf of the servicer is done electronically to expedite the process;
- Homeward Residential has established a quality assurance audit process for foreclosure, bankruptcy, foreclosure support, and default litigation to enhance controls and further mitigage risk;
- Notes are checked for endorsement and recordation information at day 120 of default;
- On average, less than 1% and 3% of mortgage insurance claims are denied and curtailed, respectively;
- Homeward Residential maintains enhanced attorney scorecards and holds monthly conference calls;
- The company has established and developed an NPV bidding strategy which has caused an increase in third-party foreclosure sales; and
- The servicer completes foreclosure cases to GSE standard at between 83% and 89%, depending on the loan type (prime, subprime, and special loans), which compares favorably with Homeward Residential's SEAM peer group and industry performance.
The bankruptcy administration staff now includes 15 employees. Details of this area include:
- Management and staff average 13 and seven years of industry experience, respectively;
- Homeward Residential performs enhanced exception and milestone reporting;
- Bankruptcy administration staff monitors loans in bankruptcy to ensure proper positioning and tracking of pre- and post-petition payments and advances;
- Bankruptcy attorneys prepare proofs of claim;
- The bankruptcy staff rejects a low .54% of proof of claims and contests 2.3%;
- Homeward Residential performs escrow analysis on all bankruptcy accounts; and
- Homeward Residential sends/receives electronic updates and communications to and from the bankruptcy trustee via an automated system.
In our view, Homeward Residential has been successful in developing its special mortgage loan platform and management has demonstrated the ability to strategically grow the portfolio. Due to the depressed number of new residential loan originations and the market competition to attain these types of portfolios, it has been difficult for servicing platforms to grow residential loan portfolios. However, the company has been marginally successful in growing its special loan operation by establishing an experienced management structure and what we believe to be an effective strategy for growing the portfolio. The portfolio now exceeds 15,000 loans with aggregate UPBs of more than $3 billion.
Individuals, with what we consider to be sufficient servicing and default operation experience, manage the company's special servicing division. An executive vice president with more than 25 years of industry experience and two years with Homeward Residential is responsible for the day to day management of this division. The special servicing division consists of a dedicated cross-functional team of 67 employees. This team uses a flexible staffing model and is supported by solid infrastructure. A newly implemented college graduate recruitment program will help further grow the staff. The special servicing group can leverage the company's technology, internal controls, general servicing support, administration, and corporate governance. Special servicing at Homeward Residential includes:
- Dedicated seasoned teams for loss mitigation and default management;
- A "prioritization queue" created to assist associates in managing their portfolios. The queue prioritizes loans by identified risk factors and helps to ensure loans are worked in a timely manner;
- A customized strategy matrix designed to meet specific parameters for each investor;
- The company's proprietary software it designed to assist associates including an investor specific dashboard with loan level data, NPV calculations, and other resolution probabilities;
- An investor Web portal;
- An investor-aligned waterfall template allowing for more aggressive and proactive loss mitigation solicitations;
- A "probability adjusted NPV" model that the special servicing division developed that can be customized for investor preferences. It includes loan level optimization of data including property trends and macroeconomic data;
- A robust risk based portfolio management control environment that helps to guide performance including portfolio performance monitoring, loss mitigation compliance reports, and associate scorecards;
- Dedicated SPOCs;
- Fully customized and scalable programs to meet each portfolio or client's needs;
- The ability to provide customized reports and performance metrics;
- All loan pools are analyzed prior to transfer to Homeward Residential to develop a strategy and plan in conjunction with the investor;
- Enhancements to the company's software, DARES, and alignment with the aforementioned probability adjusted NPV and the addition of various new special loss mitigation strategies.
- Client-specific data source and calculation methods; and
- Clearly designed metrics to measure ability to execute the best workout resolution based on client preference.
In order to grow its distressed asset portfolio, Homeward Residential intends to expand servicing relationships and expand core whole loan acquisitions through various channels. The company hopes to expand the business to include all areas of asset management and advisory services, and expand technology to include various special servicing loss mitigation strategies.
The company, in our view, has sound procedures for maximizing recovery of its REO portfolio via a combination of internal staff and vendors. In our view, experienced personnel manage the disposition of REO assets. This area's manager and five direct reports average more than 17 years of relevant experience including capable and experienced personnel from other large servicers to augment management. Associates in Texas, aided by support functions in Pune, administer REO disposition. The company also uses a group of well known and reputable vendors to help with property preservation, eviction management, and hazard claims. In our opinion, the following demonstrate the effectiveness of Homeward Residential's REO asset disposition group:
- The servicer maintains an enhanced vendor scorecard to monitor broker/agent performance;
- The caseload management of assets per employee totals approximately 500;
- REO asset managers are very experienced;
- The company develops an individual marketing plan for each asset, and each plan requires management approval;
- The REO area has compartmentalized duties to increase efficiencies;
- Subunits within REO administration include marketing, operations (closing, property preservation, eviction, broker/agent management, and title), compliance, strategic initiatives, and operational reporting.
- Homeward Residential uses cash for keys to avoid protracted eviction proceedings and to expedite REO marketing time;
- The servicer conducts cost benefit analysis when considering repairs;
- The average inventory turnaround time is approximately 250 days;
- All properties are now prepared for listing in less than 21 days and all properties receive repair analysis and pricing is reviewed at 21 day intervals;
- The REO inventory turn rate is 12%;
- The average days to market post eviction to closing is 146;
- The gross sale to market value ratio is approximately 97%; and
- The net sale to market value ratio is approximately 83%.
Homeward Residential orders independent property inspections to provide oversight of realtors, which is a proactive way to supervise REO performance and condition. Overall, we believe that the company has developed solid procedures and strong vendor oversight policies that are designed to achieve the maximum results for REO sales.
Standard & Poor's considers Homeward Residential's financial position to be Sufficient. For additional information, please refer to RatingsDirect on the Global Credit Portal, at www.globalcreditportal.com.
Related Criteria And Research
- American Home Mortgage Servicing ABOVE AVERAGE, AVERAGE Residential Servicer Rankings Affirmed, published April 18, 2011.
- Revised Criteria For Including RMBS, CMBS, And ABS Servicers On Standard & Poor's Select Servicer List, published April 16, 2009.
- Servicer Evaluation Ranking Criteria: U.S., published Sept. 21, 2004.
- Select Servicer List.
|Servicer Analyst:||Robert Mackey, New York (1) 212-438-1268;|
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