Rationale

S&P Global Ratings' ranking on Dovenmuehle Mortgage Inc. (DMI) are ABOVE AVERAGE as a residential mortgage loan primary servicer. On Aug. 7, 2019, we affirmed the ranking (please see "Dovenmuehle Mortgage Inc. ABOVE AVERAGE Residential Servicer Ranking Affirmed; Outlook Is Stable," published Aug. 7, 2019). The outlook for the ranking is stable.

Our ranking(s) reflect(s):

• A solid client-service model with supporting technology and compliance resources;
• An experienced senior management team with limited turnover and good tenure;
• Comprehensive staff training programs including a solid focus on Fair Debt Collection Practices Act training and staff certifications;
• An internal control environment with multiple lines of defense and no material internal or external audit issues identified;
• Continued investments in technology that support the internal control environment and loan administration functions;
• Generally competitive servicing performance metrics with those of peer servicers we monitor; and
• Elevated customer service and collections staff turnover rates, and elevated collections and loss mitigation call metrics.

Since our prior review (see "Servicer Evaluation: Dovenmuehle Mortgage Inc." published Oct. 24, 2018), the following key changes and/or developments have occurred:

• The head of the loss mitigation department was replaced with an industry-experienced candidate.
• DMI invested in re-designing the website offerings for clients to enhance the self-service options for borrowers.
• An enhanced process with dedicated staff to identify and resolve social media complaints was implemented.
• A governance, risk, and compliance (GRC) software was implemented in certain areas of the internal control environment.
• A loss mitigation borrower portal was implemented, which provides borrowers with the ability to electronically upload documentation and view their current status loss mitigation application status.
• DMI began using a systemic workflow technology application in the collections area.

The outlook on the ranking is stable. DMI has good internal controls, an experienced and tenured senior management team, and continues to invest in and mature its technology and operations. We will continue to monitor the company's continued efforts to automate more of its manual processes as the company's growth continues. We believe DMI will remain a capable residential primary mortgage loan subservicer for a variety of investors in the marketplace.

In addition to conducting an on-site meeting with servicing management, our review includes current and historical Servicer Evaluation Analytical Methodology data through Dec. 31, 2018, unless otherwise noted, as well as other supporting documentation provided by the company.

Profile

DMI is dedicated to subservicing residential mortgage loans. Originally a subsidiary of a bank, the company underwent an ownership change in 1991. William A. Mynatt, Jr. (DMI's chairman, president, and CEO) and a few other large shareholders are the primary owners of DMI, which is a privately held corporation formed in Delaware. Previously operating as a primary mortgage servicer, the company, under new ownership, changed its focus to subservicing loans for midsized to large commercial banks, mortgage bankers, savings banks, investment firms, state housing finance authorities, credit unions, and other financial entities.

DMI operates out of three locations: Lake Zurich, Ill.; Elgin, Ill.; and North Aurora, Ill.

DMI's loan portfolio consists mostly of prime, first-lien mortgages (see tables 1 and 2) but it also has a portfolio of home equity lines of credit and commercial loans. DMI has experienced moderate growth in its portfolio since our last review. DMI's client base is primarily small- to medium-size originators.

Table 1

Table 2

Management And Organization

The management and organization subranking is ABOVE AVERAGE for primary loan servicing.

Organizational structure, staff, and turnover

DMI's senior management committee has three senior vice presidents responsible for oversight of all operations. As of May 31, 2019, the company's management team and staff exhibit sound experience, tenure, and turnover levels:

• Senior management has 34 years of experience and 21 years of tenure.
• Middle management has 14 years of experience and seven years of tenure.
• Management and staff experienced 4% and 10% turnover rates.

Training

DMI has 18 employees dedicated to training activities at the company's three locations. The training area uses a centralized system to administer and develop training, as well as track online and offline training completed by employees. Highlights and controls of the process include the following:

• Newly hired customer service agents receive two and a half weeks of classroom instruction and an additional week and half of on-the-job training. New collectors and single point of contact (SPOC) staff receive approximately two weeks of classroom instruction and two to three weeks of on-the-job training.
• All employees are required to complete an additional 10 hours of compliance training.
• DMI places particular focus on the Fair Debt Collections Practices Act regulation and awareness through 16 hours of annual training and required certification for employees.
• Training classes for new and existing employees range from soft skills, technical training, industry-specific training, and servicing system training.
• Newly promoted and hired supervisors and assistant managers complete the DMI leadership training series within 120 days of promotion or hire.
• There is a Future Leaders course, management programs for current supervisors and managers, and a security awareness course.

Systems and technology

We believe DMI has effective technology to meet its primary loan servicing requirements. The company continues to focus on technology enhancement projects to further streamline and automate servicing tasks across various loan administration functions. DMI has well-designed data backup routines and disaster recovery preparedness.

Servicing system applications 

DMI operates in a highly automated environment, using Black Knight's MSP servicing software (which it enhances for all primary servicing functions), Back in the Black (BITB) default workflow software, NewTrak for foreclosure processing and attorney coordination, and an enterprise-wide document-management system.

Business continuity and disaster recovery 

We believe DMI has well-developed disaster recovery and business continuity plans (BCP). DMI performs full weekly tape backups, with incremental backups created daily and stored offsite weekly. The company also performs data mirroring to the backup data center, allowing for near real-time backup of critical data. DMI conducts annual training for employees on the BCP. In the event of a catastrophe that prevents DMI employees from performing their duties, any of the company's three locations can be used to recover. DMI has a backup generator in its North Aurora location for further disaster recovery capabilities. The company also has a recovery services agreement in place with a national vendor for additional call center and operational space, if necessary. In addition, a disaster recovery test was successfully performed in March 2019.

Cybersecurity 

DMI has an information security committee and a set of policies, procedures, controls, and staff resources dedicated to information and cybersecurity. There are ongoing internal intrusion prevention and detection measures of perimeter cybersecurity defenses, and an external vendor conducts an annual independent external review of the intrusion prevention controls. DMI also has annual information security policy training and awareness programs, with monthly enterprise-wide phishing exercises, that are mandatory for all staff.

Internal controls

We believe DMI has a sound internal control environment with multiple lines of defense that are independent of the business units.

Policies and procedures 

DMI has comprehensive policies and procedures (P&Ps). The compliance department manages the P&Ps and has writers who work with the operational business units to develop and maintain the procedure content. The creation and maintenance of the P&Ps follows DMI's formalized change management process. All P&Ps, as well as changes to them, must be reviewed and approved by senior and business unit managers and the compliance department before they are published. DMI reviews the P&Ps annually or as changes dictate. Clients and employees have access to the P&Ps online. The letter library and changes to it are managed by the compliance department. Necessary changes to letters or the creation of new letters are coordinated between the business units and compliance.

Quality assurance 

DMI's first line of defense is its operational management, which is responsible for controlling risk at the business-unit level. Managers use pipeline reports, developed key performance indicators, and results from the monthly quality control (QC) testing to monitor their respective departments. Since our last review, a GRC tool was implemented and is in the process of being further developed. The main focus of the GRC at present is to facilitate issues management.

Compliance and quality control 

DMI's compliance and QC departments represent the second line of defense, and both are independent from operational management and report to the board of directors. An annual risk assessment is conducted to determine the areas of risk and the severity of those risks within the organization. Compliance staff is organized by department with subject-matter experts (SMEs) assigned to the business units. SMEs partner with the business units to provide advice on regulatory requirements and work with the operational departments to implement required policy and control changes. Dedicated staff members monitor new or changed laws and regulations and provide detailed summaries to the compliance department and business unit managers. Compliance also provides its regulatory communications to DMI's clients.

The QC area performs monthly reviews of the servicing and default functions through transactional testing focused on compliance and agency requirements. QC reports the results to business unit managers to resolve noted issues, and the results are reported monthly to the senior committee. QC prepares and presents a quarterly trending report of findings to the board of directors. QC also works with compliance to update the transactional testing question sets as needed for industry and regulatory changes and reviews them at least annually with compliance and legal. Management says it is actively implementing an industry standard QC software that is projected to be complete in the beginning of 2020.

Internal and external audits  

The third line of defense is DMI's internal audit department, which reports to the board of directors' audit committee and is independent from operational management. Highlights and controls of the process include the following:

• In our view, the company's audit team is sufficiently educated with adequate industry experience.
• The audits and the review schedule are designed to address and satisfy traditional risk assessments and performance methodologies through loan-level sampling and adherence to stated policy and servicing standards.
• Risk assessments are completed at least annually to identify new or changing risks.
• DMI performs audits of all operational areas on a 12- to 18-month schedule.
• Internal audit uses the GRC and SharePoint automation for its issues management activities. It will be transitioning fully to the GRC through 2019.

We examined a sample of completed QC reviews and internal audits from 2018 through 2019 that noted only minor findings that have active or completed remediation plans. We also reviewed the Statement on Standards for Attestation Engagements 16, Regulation AB, and uniform single attestation reports for the 2018 period, which did not note any exceptions.

DMI also maintains various management committees that oversee the operations. Each of the committees has a set scope and responsibilities to provide additional oversight of the related operations.

Complaint management

In our view, DMI maintains a comprehensive complaint management process. Highlights and controls of the process include the following:

• DMI uses a defined complaint policy and tracking system to manage the complaint activities.
• DMI trains its customer service staff to resolve complaints, escalate complaints to team leads and supervisors for resolution, or to escalate complaints to the research team for resolution.
• Line-level agents can escalate to senior agents that contact the borrower by phone within two hours of the original call. The senior agent becomes the borrower's SPOC until the borrower's issue is resolved.
• Complaints are escalated into one of three categories, presidential, case-escalated, and acceleration, depending on the channel through which the complaint arrived and the response time.
• Compliance staff trains and assists business units with responding to certain complaints that may require special handling because of regulatory or legal triggers. The research team addresses escalated complaints with compliance assistance when necessary.
• All written borrower inquiries are routed through a dedicated team that determines the inquiry's appropriate regulatory status, such as notice of error or Fair Credit Reporting Act.
• Since our last review, DMI implemented an enhanced process with dedicated staff to identify and resolve social media complaints. Management says this has led to additional reductions in complaints.
• The inquiry is tasked into the servicing system, and a staff writer reviews, researches, and drafts a response to the inquiry. The audit team reviews the draft response for accuracy before approval and release, and task system updates.
• DMI performs a trending analysis of complaints at the client level on a monthly basis to determine the cause of issues. Borrower complaints are reported weekly to clients also.
• DMI acknowledges all complaints within one business day and resolves each within an average of nine days of receipt. Extension letters are mailed to borrowers in cases where additional time is necessary.

Vendor management

We believe DMI has effective methodologies in place for assessing its third-party vendors. DMI has a centralized vendor management department within the QC area and second line of defense. The vendor oversight team is responsible for the program design, framework, and updates. The board of directors also has a vendor management committee that oversees and reports on the program. Highlights and controls of the process include the following:

• DMI uses a vendor management software to automate the onboarding and oversight processes and manage the relationship with all vendors, including attorneys.
• The due diligence process focuses on the vendor's capacity and capability, financial position, information security, third-party audits, the BCP, insurance, and exclusionary lists.
• The risk assessment evaluates the vendor's business criticality, access to confidential information, and reputational risk. The assessment also dictates review depth and frequency and ongoing monitoring by DMI.
• Each vendor is assigned a relationship manager, who is responsible for ongoing monitoring through vendor reporting, scorecards, and onsite visits.
• The QC area also performs monthly reviews of work performed by vendors to provide another monitoring tool for the relationship managers. The relationship manager performs monthly monitoring of vendor service levels and provides monthly scorecards to all high-critical vendors and quarterly scorecards to medium-rated vendors.
• Internal audit and vendor management coordinate to perform annual onsite reviews of all high-critical and medium-rated vendors. Results are reported to senior management and escalated to the board of directors, as appropriate, with remediation as necessary.
• Offshore vendors and any fourth-party relationships require additional diligence and risk assessments. Additionally, a DMI offshore project manager goes onsite for several months each year to provide training, and DMI's external accounting firm performs a security audit annually.

DMI's attorney oversight department manages default attorneys using experienced staff and attorneys, who evaluate, select, and monitor attorney performance. The department vets new attorneys, maintains monthly scorecards, participates in quarterly calls, and performs annual reputational reviews and onsite visits of the top 20 states by volume and any problem states (i.e., extended foreclosure timelines, etc.). The monthly scorecard metrics are focused on contractual service-level agreements and government-sponsored entity guidelines--which are broken down by state--including peer benchmarking. Additionally, attorneys must maintain and provide borrower complaint logs to DMI.

Insurance and legal proceedings

DMI has represented that its directors and officers, as well as its errors and omissions insurance coverage is in line with the requirements of its portfolio size. As of May 29, 2019, there were no material servicing-related pending litigation items.

Loan Administration--Primary Servicing

The loan administration subranking is ABOVE AVERAGE for primary loan servicing.

New-loan boarding

DMI has the appropriate controls and procedures in place for loan boarding. Highlights and controls of the process include the following:

• DMI boards 99% of new loans electronically, with an average boarding time of one business day. The company reviews all new-loan data against file documentation to confirm loan and servicing system integrity.
• For all new clients, DMI will audit 100% of loaded loans for the first 90 days and then audit 10% thereafter.
• The transfer and conversion department coordinates all loan transfers and sets up new loans received from clients on a flow basis.
• For bulk transfers, project managers organize the end-to-end process along with assigned business unit SMEs that review reporting and data mapping on all incoming transfers.
• The project plans are managed in an automated tracking system.
• DMI uses control stage gates to better manage and resolve open items between the internal business units involved and the client before moving to the transfer's next stage.
• In-flight loss mitigation processes exist pre- and post-transfer to identify the loan, communicate with the borrower, and meet the required regulations.
• There are dedicated resources and a process to track collateral files and missing documents requested from previous servicers and clients.

Payment processing

DMI has a sound and efficient cash management operation. Highlights and controls of the process include the following:

• DMI receives approximately 98% of its payments through electronic payment sources with the remaining 2% being manual exceptions.
• Live checks that are received outside the lockbox, or exception items from the lockbox, are processed in a secure cash room with 24-hour surveillance, limited card reader access, and fireproof safes for storage.
• Suspense funds are managed through systemic controls and coordination with individual departments to post exception funds. Staff review periodic tracking reports to validate aging and the posting of funds.
• Managers' review the balancing work performed by tellers, which includes reviewing the clearing accounts for items such as shortages and overages. New employees' work is audited by management to confirm accuracy.
• Staff turnover in the payment processing area was 7%, which is similar to peers'.

Investor reporting

DMI has appropriate oversight and controls to ensure timely reporting and remitting. Highlights and controls of the process include the following:

• The department maintains an appropriate segregation of duties and is divided into four units based on investor reporting requirements (see table 3).
• DMI uses specialized software to more efficiently handle canceled disbursement checks, loan-level principal and interest reconciliations, and electronic delivery of reconciliation packages.
• The data gathering process is 100% automated, with a 99% electronic reporting and remitting rate, as some smaller investors cannot receive electronic reporting and remittances.
• The company requires manager sign-off on all reports and reconciliations.
• As of May 31, 2019, DMI reported 64 open reconciling items that are aged over 60 days and 236 that are over 89 days with all items resulting in a credit balance in the accounts. However, these items and credit balance are monies waiting to be drafted by the investor and are not unidentified items.
• As of May 31, 2019, staff turnover in the investor reporting area was 4%, which we consider to be good. However, DMI did report higher staff turnover levels of 14% and 7% in the first and second half of 2018 data periods.

Table 3

Escrow administration

DMI operates a satisfactory escrow administration department that benefits from the effective use and oversight of its third-party vendor relationships for real estate tax, as well as for hazard and flood insurance. DMI conducts all escrow analyses internally and handles phone inquiries related to the analyses, taxes, and insurance. Highlights and controls of the process include the following:

• DMI meets with vendors monthly, conducts regular onsite visits, and uses a monthly scorecard to monitor vendor performance against service-level agreements.
• QC staff performs vendor testing monthly, as well as reviews the QC testing that is conducted by the vendors.
• Loss draft claim calls and responsibilities are handled by specialized escrow staff, which also serve as a borrower's SPOC.
• Management monitors various performance metrics to validate that loss draft claims are processed timely.
• Lender-placed insurance and cancelation rates are satisfactory.
• As of May 31, 2019, DMI reported that tax penalties averaged $0.02 per loan, which we consider to be good, and is similar to DMI's previous first and second half of 2018 reporting periods.
• As of May 31, 2019, the escrow department staff turnover was 7%.

Mortgage reconveyance

DMI had a 3% reconveyance rejection rate, and less than 1% of loans were out of statutory compliance as of May 31, 2019, with the rejection rate being an improvement since our last review. DMI did not incur any penalties for failure to timely reconvey those loans. Management conducts periodic meetings with compliance to ensure that state requirements and the release templates are up to date.

Special loans administration

DMI maintains controls for its ARM loans. The rate index values have dual reviews to ensure the validity of any input data, and a random quality assurance (QA) sample is conducted for all ARM changes for affected plans. Checklists are used for all processes, and peer reviews are conducted to validate accuracy and completeness. Additionally, management performs a random audit of the checklists periodically.

Customer service

DMI has call centers in Lake Zurich, Elgin, and North Aurora, Ill., where it handles inbound and outbound customer calls. The call centers are fully automated, employing various technologies that include an automated call distributor and a voice response unit. Highlights and controls of the process include the following:

• The call centers offer bilingual services and extended customer service hours on weekdays.
• Customer service training is overseen by a dedicated manager and trainers in the department.
• A three-tier customer service agent model provides career path planning.
• There is an assistance phone queue staffed by team leads and supervisors that provides support to agents during calls, if necessary.
• The customer service call center has metrics that we consider to be adequate (see table 4).
• The first-call resolution rate was 97%, which is better than peers'.
• As of May 31, 2019, there was no management turnover but there was 24% turnover for staff, which we consider to be somewhat elevated. These turnover rates are similar to the levels reported by DMI in the first and second half 2018 reporting periods.
• Dedicated QA analysts monitor the call center staff's quality by listening to a minimum of 10 calls a month per agent, which has increased from eight calls in the previous review, but is fewer calls monitored than DMI's peers on average.
• The results of the monitored calls are reported to business management monthly, and agents who score less than 90% can have incentive compensation affected.
• DMI has screen capture technology, which is reviewed during the call monitoring process.
• Customer satisfaction surveys are automatically offered to all borrowers at the end of each call.

Table 4

Default management

DMI's default operations management and staff exhibit overall satisfactory industry experience, tenure, and turnover metrics. However, we consider the staff turnover in collections to be elevated (see table 5).

Table 5

Collections

Default management activities occur at DMI's three sites. Management says it provides active counseling to delinquent borrowers as early as possible in the delinquency lifecycle. Depending on the loan type, the age of the loan, and its history, calls can begin as early as the third day of delinquency. Additionally, the primary portfolio's total delinquency rate has been stable year-over-year with its moderate portfolio growth (see tables 1 and 6).

Table 6

Highlights and controls of the process include the following:

• The collections department maintains inbound and outbound teams. The outbound team is further segregated into three groups: early delinquency, multi-delinquency, and serious delinquency (more than five payments).
• Outbound emails are used in the one- to 30-day collections strategy.
• A dialer software assists DMI with identifying best-time-to-call strategies, create customized outbound dialing campaigns by investor, and isolate loans being transferred for calling campaigns.
• Since our last review, DMI implemented the BITB workflow technology in collections that is used in the loss mitigation area.
• The servicing system contains a specialized tool to aid with Telephone Consumer Protection Act compliance that identifies, categorizes (work, cell, etc.), and codes borrower telephone numbers to indicate whether consent has been given to call the number.
• We consider the collections call metrics to be elevated (see table 4). The call metrics were also elevated in the second half of 2018 reporting period with an average speed of answer of 79 seconds and an abandonment rate of 4.50% .
• The collections department and QC monitor six calls per agent per month, which is less than peers'. One of the calls per month are monitored side-by-side, and a new employee typically has eight to 10 calls monitored per month for the first 90 days.
• Promise-to-pay success rates are 89% and 87% for accounts 30- and 60-days delinquent, respectively, which is better than peers.

Loss mitigation

DMI's SPOCs are organized and assigned by investor. DMI uses the BITB loss mitigation platform, which allows clients access to direct modification programs and provides timely feedback regarding available options. Loan coordinators gather loss mitigation documents, review complete packages, and send incomplete information notices to borrowers. DMI assigns a SPOC to a borrower once it receives at least one loss mitigation document. Highlights and controls of the process include the following:

• Since our last review, DMI staffed an additional manager, two additional assistant managers, and a supervisor commensurate with its current and projected growth.
• DMI has an automated management oversight report that monitors high-level loss mitigation milestones.
• Chat functionality is available for borrowers with their SPOC.
• We consider the loss mitigation call metrics to be significantly elevated similar to our previous review (see table 6). Management says the elevation has continued mainly due to natural disasters, and the issue has been addressed with additional SPOC agents and supervisory staff. Management provided additional month-over-month call metrics data indicating improvement in the metrics beginning in March through May 2019.
• QC monitors six calls per agent per month, which is less than peers'. One call per month is monitored side-by-side, and a new employee typically has eight calls monitored per month for the first 90 days.
• The BITB software has all retention and disposition loss mitigation alternatives programmed into it to give DMI increased reporting and workflow analysis.
• Since our last review, DMI implemented the BITB borrower portal enabling electronic upload of documents and the ability to view the status of a loss mitigation application.
• The SPOC communicates all loss mitigation decisions to the borrower before sending an approval or denial letter, and all final modification documents are reviewed to validate correct terms.
• There are dual reviews and approvals of all loss mitigation denials and a sampling of approvals to validate completeness and accuracy, including income and expense inputs.
• As a subservicer, DMI offers borrowers loss mitigation alternatives developed by its clients, particularly for modifications (see table 7).

Table 7

Foreclosure and bankruptcy

DMI has sound oversight of its foreclosure and bankruptcy staff that enables the company to optimize timeline management during the legal process. DMI uses system workflows to manage its foreclosure and bankruptcy processes. Highlights and controls of the process include the following:

• A dedicated trainer, who focuses on foreclosure, bankruptcy, and supervisory skills.
• Foreclosure personnel and the corresponding attorneys handle multiple states to foster greater knowledge and expertise with the various legal processes throughout the country. DMI uses an approved attorney network unless otherwise directed by its clients.
• The foreclosure and bankruptcy departments have a formalized QA process that reviews monthly samples of each department's end-to-end processes.
• A foreclosure committee reviews all loans before deciding to refer the loan to foreclosure.
• Exception reports are used to track foreclosure holds, file-aging, and any issues or illogical items in reporting.
• All loans undergo Servicemembers Civil Relief Act compliance checks at various points throughout the foreclosure process (depending on judicial versus non-judicial status).

DMI's bankruptcy department staff and workflow are organized by process and chapter/state. Highlights and controls of the process include the following:

• Management uses system reporting to track the progress of various bankruptcy milestones.
• The department uses the National Data Center, which provides it efficient access to bankruptcy trustee information.
• The company uses a vendor software to search bankruptcy court dockets for bankruptcy filings daily.
• DMI's attorneys prepare and submit all bankruptcy proofs of claims (POCs) to the bankruptcy court; however, DMI's bankruptcy staff reviews and approves the POC before submission to the court.
• The company reported that no POCs were rejected or disputed, which was better than peer metrics.

Real estate-owned (REO)

DMI has a dedicated staff that actively manages the REO properties for its clients on a limited basis. DMI lists properties with two asset management vendors, and it maintains close oversight of those vendors' marketing and sales activities. DMI's clients direct the properties' administration, which affects industry performance metrics, such as sale price, eviction timeframes, and days to market. Some clients elect to manage and market their respective properties, while others authorize DMI to market properties under agreed-upon guidelines. Additional highlights and controls of the process include the following:

• The company uses a cash-for-keys strategy where possible, with a preference not to evict.
• Client authorization is required for DMI to make repairs to houses and properties.
• The gross sales-to–market value ratio is approximately 92%, and the net sales–to-market value ratio is 87%.

Financial Position

The financial position is SUFFICIENT.

Related Research

• Dovenmuehle Mortgage Inc. ABOVE AVERAGE Residential Servicer Ranking Affirmed; Outlook Is Stable, Aug. 7, 2019
• Select Servicer List, June 25, 2019
• Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019
• Servicer Evaluation: Dovenmuehle Mortgage Inc., Oct. 24, 2018