Fitch Ratings has affirmed the following U.S. residential primary
servicer ratings for Residential Credit Solutions, Inc. (RCS):
--U.S. Residential primary servicer rating for subprime product at
'RPS2-'; Outlook Stable;
--Special servicer rating at 'RSS2-';
The rating affirmations and Stable Outlook reflects the strength of
RCS's high-touch servicing model that consists of low accounts per loss
mitigation agent; continued effective default capabilities to establish
contact with borrowers resulting in improved delinquency roll rates and
resolution of defaulted loans; and enhanced efficiencies in loan
administration functions. Specifically those functions resulting in
effectively managing borrower information during the on-boarding of loan
transfers to ensure quicker identification of issues, while also
enabling the servicer to quickly identify the appropriate default
servicing department (i.e, single point of contact, foreclosure) to best
assist the borrower.
However, the ratings also reflect the delayed improvements to the
servicer's internal audit department. While the internal audit program
is performed by a sole auditor possessing significant industry
experience and six years tenure with the company, Fitch is concerned
that the limited resources in this area creates significant challenges
to maintain the annual auditing of servicing functions. In addition, the
impending Consumer Financial Protection Bureau rules, effective January
2014, will expect additional auditing requirements of servicers. The
servicer acknowledged this concern and stated it anticipates hiring
additional staff within the coming months. Fitch will expect to see the
full staffing and coverage of the auditing plans in the servicer's next
annual review in order to remove this as a concern.
The ratings also take into consideration the financial condition of RCS,
a non-rated Fitch entity, as financial condition is a component of
Fitch's servicer ratings.
Finally, the ratings also reflect 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
RCS operates its servicing platform from Fort Worth, TX with a servicing
staff of 232 full-time equivalents (FTE) at the time of the review. The
company's strategy remains focused on credit-sensitive and
servicing-intensive residential mortgage assets. As of June 30, 2013,
RCS's servicing portfolio consisted of more than 49,000 loans totaling
$8.2 billion. The current portfolio contains approximately 20,000
subprime first and second lien mortgage loans totaling approximately
$4.3 billion and 27,000 government sponsored entity loans totaling
approximately $3.5 billion. RCS's portfolio consists of approximately
93% under special servicing arrangements.
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:
--'Rating Criteria for
Structured Finance Servicers' (Feb.6, 2013);
and Small Balance Commercial Mortgage Servicer Rating Criteria' (Jan.
Applicable Criteria and Related Research:
Global Rating Criteria
for Structured Finance CDOs
Residential and Small Balance Commercial Mortgage Servicer Rating
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Natasha Hanson, +1-212-908-0272
One State Street Plaza
New York, NY 10004
Susan Hosterman, +1-212-908-0670
Lauren Cerda, +1-312-606-2317
Sandro Scenga, +1-212-908-0278