Rationale

S&P Global Ratings' ranking on Freedom Mortgage Corp. (FMC) is AVERAGE as a residential mortgage loan primary servicer. On Feb. 3, 2021, we affirmed the rankings (please see "Freedom Mortgage Corp. AVERAGE Residential Primary Servicer Ranking Affirmed; Outlook Stable," published Feb. 3, 2021). The outlook is stable.

Our ranking reflects:

• The significant increase in the portfolio over a short period with a relatively new platform, mitigated somewhat by the good use of a staffing model for staff preparation in advance of need and dedicated resources for call center coaching and one-on-one training;
• Effective business continuity practices including housing operational functions in multiple locations;
• A sufficient vendor management program including a good attorney oversight program;
• A servicing controls group that manages loss mitigation, inline quality assurance, and quality control testing; and
• A sufficient framework for management of internal audits. However, only one of four audits scheduled for the first half of 2020 was completed.

Since our prior review (see "Servicer Evaluation: Freedom Mortgage Corp.," published Sept. 12, 2019), the following changes and/or developments have occurred:

• The president of residential servicing for FMC is now in an advisory role and the responsibility for the residential servicing division was moved under the president of correspondent lending, who was already managing servicing finance and strategic initiatives.
• A new borrower-facing website was deployed with increased functionality.
• FMC implemented call calibrations performed by servicing executive management.
• The customer service and collections team were combined into a single customer care group.
• FMC moved from a proprietary loss mitigation workflow system to the TEMPO system.

The outlook is stable. In the relatively short time that FMC has been servicing loans they have developed and continue to invest in the infrastructure to manage the growing servicing portfolio. We will continue to monitor FMC through a review of their metrics and initiatives to ensure the platform is sustainable and continues to develop.

In addition to conducting a virtual meeting with servicing management, our review includes current and historical Servicer Evaluation Analytical Methodology (SEAM) data through June 30, 2020, as well as other supporting documentation provided by the company.

Profile

FMC, a privately owned company formed in 1990, is headquartered in Mt. Laurel, N.J. It originates loans in all 50 states, the U.S. Virgin Islands, and Puerto Rico through four channels: correspondent, wholesale, retail, and call center. The bulk of the originated loans are sold to the Federal National Mortgage Assn. (Fannie Mae), Federal Home Loan Mortgage Corp. (Freddie Mac), and Government National Mortgage Assn. (Ginnie Mae) with the mortgage servicing rights (MSRs) retained by FMC. In 2014, FMC began servicing new loan originations and as of 2016, services its entire portfolio.

FMC's primary servicing location is in Fishers, Ind. with additional locations in Jacksonville, Fla.; San Dimas, Calif.; Beaverton, Ore.; and multiple sites in the Mount Laurel, N.J. vicinity.

Freedom completed the acquisitions of J.G. Wentworth Home Lending LLC (JGW) in August 2019 and RoundPoint Mortgage Servicing Corp. (RMS) in August 2020. The JGW employees, offices, and portfolio were merged into FMC's servicing platform. RMS, with the exception of its retail channel, is an operating subsidiary of FMC. As such, the RMS portfolio is not included in this review. FMC's total portfolio has remained fairly consistent over the last three years (see table1). While FMC's largest population of loans within its portfolio was located in California, as of June 30, 2020, we do not feel the concentration was large enough to cause undue risk (see table 2).

Table 1

Table 2

FMC says it plans to continue to grow its origination channels, as well as the servicing portfolio through strategic acquisitions and the expansion of its origination programs to include non-agency products.

Management And Organization

The management and organization subranking is AVERAGE for primary servicing.

Organizational structure, staff, and turnover

Since our prior review, FMC made a servicing executive management change. The president of residential servicing for FMC is now in an advisory role. The responsibility for residential servicing was assigned to the president of correspondent lending, who was already managing the servicing finance and strategic initiatives in addition to correspondent lending. The president of servicing and correspondent lending reports directly to FMC's CEO and president. There are eight executives who report to the president of servicing and correspondent lending, six of which are in servicing areas. The five servicing areas are core servicing, loss mitigation, default services, servicing finance, servicing governance and controls.

In addition to the servicing management change, FMC hired a chief people officer, who reports directly to the CEO and president. This addition was prompted by staffing increases across all FMC divisions. Between June 2019 and June 2020, FMC increased its staff by approximately 39%. FMC also acquired a new site in Beaverton, Ore. that had been vacated by another mortgage servicer and where they were able to hire experienced mortgage staff.

FMC's management team and staff exhibit adequate experience, tenure, and turnover levels.

• Senior management averages 26 years of industry experience, with five years average tenure at FMC;
• Middle management averages 12 years of industry experience, with an average of four years tenure;
• Turnover rates for management and staff are 7% and 10%, respectively, which we consider competitive.

FMC uses a staffing model, which forecasts staffing requirements around specific product or investor types. For servicing positions, the model identifies the staffing requirements 60-90 days in advance of need except for single points of contact (SPOCs), which are identified six months in advance due to licensing requirements. External recruiting companies, employee referral programs, social media advertising, job boards, and virtual career events are some of the methods used to source new employees.

In early March 2020, and as a result of the COVID-19 pandemic, FMC began onboarding staff remotely. New employees were sent all required equipment to be set up and validated in advance of their start date.

Training

FMC has corporate-wide development and training programs for new hires and existing staff, which cover culture and soft-skills in addition to systems, product, and process training. Highlights of the program include the following:

• Ten hours of annual compliance training is required of all staff and is delivered and tracked through the learning management system.
• Any training developed to address regulatory or agency requirements is approved by the legal department.
• Historical training delivery methods include classroom, virtual instructor-led, on-line modules, and side-by-side on-the-job (OTJ) training. Since converting to a remote work environment, all mandatory new hire, required position training, and regulatory and compliance training courses have been modified to be delivered virtually.
• Each site has a dedicated person who provides coaching and one-on-one development.
• Newly hired call center agents receive 101 hours of classroom instruction and an additional 50 hours of OTJ training.
• Newly hired SPOCs and collectors receive 140 hours of classroom instruction and an additional 48 hours of OTJ training.
• New hire training is customized based on experience. Specialized programs are geared to recent college graduates, as well as seasoned professionals who are new to mortgage servicing.
• The Coronavirus Aid, Relief, and Economic Security (CARES) Act training was developed and conducted via virtual classrooms.

We believe FMC provides a well-developed education curriculum for all new hires, which is mindful of regulatory requirements, and offers continuing education for tenured employees to assist in ongoing development.

Systems and technology

We believe FMC has effective technology to meet its primary servicing requirements. FMC operates in a sound automated environment and effectively uses a combination of vendor and proprietary systems. Additionally, FMC has well-designed data backup routines and disaster recovery preparedness.

Servicing system applications 

Sagent's LoanServ system is the primary servicing system used by FMC. The following ancillary systems are used within servicing and interface with LoanServ:

• FMC's proprietary document management system, EDMS;
• TEMPO default portal;
• CMAX claim preparation and filing system;
• iClear invoice management;
• Calibrio work force management; and
• Genesys telephony and voice technology system;

FMC deployed a new customer facing website in June 2019. The new website includes, among other things, the ability for borrowers to review account history, view statements, make payments, communicate with FMC through a secure mailbox, and request payment assistance. Additionally, a tool was implemented for borrowers, which provides loss mitigation options available to them based on their loan.

Business continuity and disaster recovery 

FMC maintains a sound disaster recovery and business continuity plan, including response procedures to address operational disruption as a result of a pandemic event. The company implemented its plan due to the COVID-19 pandemic. Management reported that there were no disruptions to the company's operations or data facilities. We believe FMC has a well-developed disaster recovery and business continuity plan. Highlights of the program include the following:

• All data is backed up daily.
• Backups are transferred to cloud storage with real-time retrieval capability.
• Servicing data is handled through Sagent datacenters.
• Telephony technology is housed in two locations (Indiana and New Jersey) with failover capability.
• All servicing systems have an eight hour recovery time objective.
• Good diversification of operational groups across its servicing sites.

Cybersecurity 

FMC has policy and procedures within its information technology group to manage compliance with all Federal and state requirements pertaining to information security. The chief information officer, chief administrative officer, chief of staff, and chief risk officer sit on the information security executive management subcommittee, which is responsible for oversight of information security and cybersecurity.

Tools and practices used by FMC for data security include:

• Laptops and desktops are full disk encrypted;
• Remote access requires two-factor authentication;
• Virtual devices are run on a secure cloud desktop service;
• Email is encrypted;
• Systems access is certified monthly;
• Firewall, encryption, and monitoring technologies are in place;
• Phishing campaigns are conducted monthly;
• Data is written once to a vault and thereafter, is read only as a tool to protect against ransomware; and
• Annual information security training is required of all employees.

Since our prior review, FMC changed its frequency and scope of penetration and intrusion testing to monthly smaller tests from a large annual one. The last annual test was performed in January 2020, which identified a material issue that has since been remediated.

Internal controls

We believe FMC has an adequate internal control environment with multiple lines of defense that are independent of the business units. FMC uses governance, risk, and compliance software at an enterprise level.

Policies and procedures 

FMC has well-written policies and procedures (P&Ps), available to all employees via the company intranet. The manuals are formatted in an easy to comprehend manner and include subsections for a process overview, summary, preparation, action steps, and related documentation. Each document includes a change log, as well as the version, process owner, most recent review and approval dates, and the next review date. P&P's are reviewed by compliance and must be certified every six months by the loan level manager.

Quality assurance and call monitoring 

FMC's first line of defense is quality assurance (QA) testing performed by the business units. The QA work is overseen by the servicing governance and controls unit, which reports to the servicing president. Servicing governance and controls is responsible for the following control related areas:

• Change management: Monitors for regulatory and investor changes, works with compliance on interpretation and impact, initiates and monitors required changes, and provides weekly updates to management;
• Process documentation: Tracks and manages the procedure library; and
• Business controls: Oversees QA for loss mitigation, tracks business unit risk self-assessments, validates business controls, and monitors and manages corrective action plans.

Risk control self-assessments (RCSA) are used by the business units to identify high risk areas and the associated controls. The RCSAs are maintained in the governance, risk, and compliance system and require quarterly certification by the servicing president.

A QA group outside of the servicing division performs call monitoring of two calls per agent per month, and then score the calls and provide them to the agent's manager. In addition to this, supervisors within the servicing division monitor two calls per agent per week. In aggregate, 10 calls per month are reviewed for each agent. The scorecards used for monitoring include regulatory requirements, as well as soft skill evaluation sections. The monitoring results from QA and the supervisor are rolled into the agent's monthly scorecard. The agent scores roll up to a supervisor and region score, as well as a key performance indicator tracker for each department. QA uses a speech analytics tool on 100% of calls to capture customer sentiment, tone, and inflection. Any calls that indicate an issue, are added to a report and the issue is prioritized as high, medium, or low. High- and medium-rated items go to the customer advocacy team for handling, while the low-rated items go to the appropriate operations group. With the use of the analytics tool on all calls, the calls reviewed by QA are targeted based on scoring trends. FMC implemented daily executive call calibrations to monitor agents handling of CARES Act related calls. Since its original implementation, the scope has expanded to non-COVID-19 related calls.

FMC's letter team is housed within the servicing department and manages the implementation, management, and vendor relationship for borrower letters. A letter library houses all templates that have been approved by the business, legal, and compliance areas. A daily reconciliation is performed to validate that:

• All loans requiring borrower letters were added to the vendor file;
• The vendor generated all required letters;
• All generated letters were mailed; and
• All letter images were provided to FMC.

FMC's letter team also completes a sample review of letters produced by the vendor prior to the print job's release.

Compliance and quality control 

FMC's second line of defense comprises quality control (QC) and compliance. The QC group, under the risk management division, performs operational and quality control reviews. Monthly regulatory and QC testing of federal and state, internal P&P, and investor requirements is performed by the operational and QC team reporting under the risk management division. A statistical sample is used for testing, in addition to ad hoc targeted reviews. Formal reporting is provided to management on a monthly basis and to senior executives quarterly. The reporting provides a summary of the reviews performed, the findings, and highlights of any critical defects, as well as provides the management responses and action plans.

FMC's regulatory compliance group within the legal department, is responsible for the overall compliance program consisting of:

• Administration of regulatory change management across FMC;
• Performance of compliance testing, root cause analysis, and remediation to address gaps in compliance;
• Management of regulatory and investor changes through monitoring, tracking, implementation, and reporting to the board-level office of the president;
• Maintenance and review management of the central repository of all policies related to consumer protection laws;
• Oversight of complaint management by the customer service department including monitoring for timely responses and analysis of root causes to identify trends.
• Establishment and maintenance of the compliance training curriculum, development of the training modules, and tracking of adherence to training requirements.

FMC retained the services of an outside firm to conduct an independent review of its compliance with the CARES Act and all related regulatory and investor requirements.

Internal and external audits  

The third line of defense is FMC's independent audit department, which reports to the audit committee chair, and conducts traditional internal audits of the servicing and default functions. In November 2020, a new head of internal audit was hired. Highlights and controls of the audit department process include:

• All auditable entities are assessed for risk at least annually, although real-time analysis is also performed to take into account changes resulting from various factors.
• The annual audit plan is developed from the risk assessment, with high-risk audits conducted every 12 to 18 months, medium-high risk audits conducted every 18 to 24 months, and low risk audits conducted every 36 months.
• The audit plan is reviewed and approved by the audit committee. Any significant changes to the plan, based on a reassessment by the internal audit department, requires audit committee approval.
• Internal audit issues and action plans are tracked in the governance, risk, and compliance (GRC) tool and reported, along with the status of all planned audits, on a quarterly basis to the audit committee.
• The risk department completes the follow up all of outstanding corrective actions and provides reporting on items not yet remediated to senior management and the audit committee until the remediation is completed.
• The head of servicing governance and controls meets with the risk department to review all open corrective action plans on a monthly basis.

Of the 10 servicing or servicing-related internal audits scheduled for 2020, FMC published only one due to delays in the prior year audit and internal audit staffing issues. Four audits (the single published audit for the 2020 period and three completed from the 2019 schedule) were reviewed, and none cited material issues. While we believe the framework for management of internal audits is sufficient, the failure to complete timely audits and ensure controls are working as intended is a risk to the company. We also reviewed the 2019 Service Organization Controls report. No material exceptions were identified.

Complaint management

Complaint management is performed at an operational level for servicing within the correspondence and research department with oversight by the complaint management team within the legal department. Complaints, whether verbal or written, are entered into FMC's proprietary customer complaint tracking system. All customer response correspondence is drafted by a member of the letter writing team and reviewed by leadership prior to sending to the customer. Daily control reports are pulled from the tracking system to monitor adherence to response timelines. Complaint data are reviewed and analyzed for trends and monthly reports are distributed to management, including the executive team.

As of June 30, 2020, FMC averaged two days to acknowledge customer Real Estate Settlement Procedures Act complaints (comparable to peers) and 15 days to resolve those complaints (longer than those reported by similarly ranked peers).

Vendor management

FMC's vendor management team assists in the selection and monitoring of vendors. Due diligence and contract reviews are done in conjunction with legal and information technology. Contracts over a specific dollar amount require the approval of the department's executive vice president, as well as the vendor committee.

Risk assessments are performed on vendors, the results of which, drive the frequency of oversight controls. Annual due diligence is performed for all vendors with on-site visits performed on tier-one vendors. Oversight activities completed by the business unit and vendor management include:

• Contract management;
• Invoice review;
• Scorecard completion;
• Onsite reviews;
• Issue tracking; and
• Satisfaction surveys.

We believe FMC has good oversight protocols for attorney management. An automated scorecard is produced monthly for default attorneys and is reviewed on monthly calls between the business unit, vendor management, and the firm. The scorecards are driven from pipeline reporting for timeline adherence, as well as the vendor issues log, and each firm is given a pass or fail grade. Any firm that fails is put on a performance improvement plan and referrals are reduced until they can improve the performance.

Insurance and legal proceedings

FMC 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 the date of this report, FMC disclosed pending litigation and related financial reserve amounts, which management says it does not deem significant.

Loan Administration--Primary Servicing

The loan administration subranking is AVERAGE for primary servicing.

New-loan boarding

FMC boards loans from its loan originations system, as well as through bulk transfer. All boardings are done electronically and, regardless of source, control and reconciliation reports are run and a document-to-system review is performed to validate data integrity in the servicing system, including loans in loss mitigation and foreclosure. The servicing transfer team also performs post-transfer follow up for all servicing and collateral files, including missing document reporting.

Payment processing

FMC has an efficient cash management operation. Approximately 88% of all payments are received electronically, of which almost 33% are made through the servicer's website. We believe FMC has good payment processing procedures to minimize the risk of loss from fraud and human error. Highlights and controls of the payment processing function include the following:

• Payment posting is done within secured areas in Fishers, Ind. and San Dimas, Calif.
• Daily reconciliation of payments posted versus deposits is performed.
• Items that cannot be posted are secured in a fireproof safe.
• Daily control reports are used to manage and monitor funds-in-suspense with monthly reports provided to management.
• A lockbox decisioning tool is used to expedite payment posting.
• Specific bankruptcy staff provide posting instructions to cash management for payments received on accounts in bankruptcy.

Payment processing staff continue to work on-site to manage payments in the secure payment rooms while following social distancing guidelines even as the bulk of FMC staff work remotely due to the COVID-19 pandemic.

Investor reporting and accounting

FMC's investor reporting and accounting department is responsible for reporting, remitting, and reconciling accounts according to investor guidelines. The majority of the portfolio is made up of loans owned by Ginnie Mae, with Fannie Mae and Freddie Mac making up the bulk of the remaining loans (see table 3). Highlights and controls of the investor reporting process include the following:

• 100% of investor reporting and remitting is transmitted electronically.
• Principal and interest custodial bank account balances are monitored daily for sufficiency of funds.
• Clearing accounts are reconciled daily.
• Monthly investor scorecards issued by investors are reviewed with senior management.
• Monthly meetings are held with servicing management and the servicing controller to review bank account reconciliation status and open reconciling items.

For the semiannual SEAM period ended June 30, 2020, FMC reported minimal aged items, which we consider are manageable.

Table 3

Escrow administration

FMC escrows approximately 94% of its prime servicing portfolio for taxes and insurance. It uses a national tax vendor for tax monitoring, disbursements, and tax related customer service calls. FMC's insurance vendor is responsible for hazard monitoring, disbursements, loss draft administration, lender-placed insurance processing, and insurance-related customer service calls. Escrow analysis and mortgage insurance processes are managed in-house.

Highlights and controls of the escrow administration process include the following:

• Non-reimbursable tax penalties amounted to $0.02 per loan, which is similar to peers.
• Open items reports for both tax and insurance are worked on a weekly and monthly basis.
• A bi-weekly meeting is held with the tax vendor to review the portfolio's tax status.
• Customer service calls for both the insurance and tax vendor are monitored and calibrated by FMC with a monthly scorecard provided to the vendors.
• The insurance vendor's average speed of answer (ASA) was 29 seconds with a 2.23% abandonment rate.
• A monthly certification of premiums paid is performed by two levels of escrow management.
• FMC performs an audit of the vendor lender-placed insurance policy work on a monthly basis, including the letter cycle timing.
• Monthly audits are performed to ensure the interest rate paid on escrow accounts is accurate.
• Control reports identify all loans requiring an escrow analysis including those converting to escrow.
• A manual review is completed for loans with escrow shortages or overages outside of a set threshold.
• A monthly reconciliation of loans with mortgage insurance is coordinated with the insurance companies.
• For loans scheduled for a large increase in the escrow payment, FMC works with customer engagement, who launch calling campaigns to discuss the payment changes.

Mortgage reconveyance

Reconveyances are handled within the loan administration department. Rekon software is used to prepare, track, and manage the lien releases. Vendors are used to supplement the in-house processing based on volume to ensure compliance with reconveyance timelines. FMC reported less than 1% of reconveyances processed out of statutory compliance with no penalties incurred.

Special loans administration

Special loans is responsible for the setup and processing of data on adjustable rate mortgage (ARM) loans, Servicemember Civil Relief Act (SCRA) eligible loans, partial release requests, and balloon loan monitoring. A document-to-data audit is performed on 100% of ARM loans at the time of boarding and prior to the first interest rate change. Control reports are used to validate the changes and that the appropriate notices are generated. ARM indices require dual verification for system input and FMC also requires that a supervisor check the system after the input verification is completed.

A vendor is used to search the SCRA status of borrowers on a quarterly basis, except for Fannie Mae loans, which are reviewed monthly.

Customer service and collections

FMC combined the customer service and collections team into a single customer care team since our last review. The customer care team handles all inbound calls from borrowers whose accounts are less than 90 days delinquent, early stage collection calls, and welcome calls. In addition to FMC staff, FMC uses a domestic vendor to handle customer service calls. For the period ending June 30, 2020, 37% of the customer service call volume was handled by the vendor. Calls are routed between FMC and vendor staff so all call statistics are tracked in aggregate. We believe tracking the vendor's statistics separately provides for more effective oversight and vendor management. Customer service also completes the welcome calls for newly acquired loans.

Customer engagement representatives receive five weeks of training and are also trained on loss mitigation so they understand and can explain to borrowers what the various options and the processes associated with them are. With the switch to a remote workforce due to the COVID-19 pandemic, FMC modified the training for new agents with enhancements to the nesting period, such as adding another week to the training period, and dedicating supervisors to manage the onboarding of all new hires. FMC also added "virtual" floor walkers to help support new hires.

Highlights and controls of the customer engagement process include the following:

• Management turnover rate of 12% and staff turnover rate of 35% were higher than peer average. Vendor turnover rate of approximately 19% was better than peers.
• A QA group performs two call monitors per agent per month. These scores are provided to the managers for staff feedback and incorporation into the scorecard. In addition, the supervisor performs call monitoring on two calls per week per agent. The total of 10 calls per month is comparable to peers.
• The percent of website users of 87% is higher than we see with other servicers and the interactive voice response capture rate of approximately 30% is lower, which we view as a sign of increased borrower self-service resulting in greater operational efficiencies.
• While the trend across servicers were high ASA and abandonment rates for the first-half of 2020 due to the influx of COVID-19-related calls, FMC's customer service ASA and abandonment rates (see table 4) were both worse than those reported by peers.
• The in-house risk model is used to score loans for call attempts and is refreshed with a FICO score quarterly.
• Customer care teams are located in the Marlton, N.J., Beaverton, Ore., and San Dimas, Calif. offices.
• Workforce management is used for staff forecasting and scheduling.
• LexisNexis is used for bulk skip tracing.

Table 4

FMC has a separate customer experience team responsible for managing the OTJ training,

customer complaint analytics, and voice of the customer surveys.

Default management

While we expect FMC to have lower average tenure across the default groups based on the time the company has been servicing loans, they also have lower average industry experience across its loss mitigation and foreclosure compared to peers. Turnover rates for customer care and loss mitigation management and staff are higher than we see with peers. Alternatively, foreclosure and bankruptcy management and staff turnover rates are better than averages of similarly ranked servicers (see table 5).

Table 5

Table 6

Loss mitigation

For loans that are 40 days delinquent but not in an active loss mitigation process, FMC assigns loans to an unengaged SPOC within the collections group. When a package is received, the borrower is assigned an individual SPOC. These SPOCs act as liaisons between the loss mitigation fulfillment group and the borrowers in order to explain the loss mitigation process, gather any additional documentation, and update the borrowers with the workout status.

The company implemented the TEMPO loss mitigation system in July 2019 as a workflow tool.; Data is fed from TEMPO and Sagent to its proprietary decision-making tool for government loans and to Desktop Underwriter and Loan Prospector for Fannie Mae and Freddie Mac loans, respectively. The decisions are then manually updated in TEMPO.. A number of specialized processing teams handle the document review, income calculation, and underwriting processes. There are QA routines throughout each step of the process. We believe this approach provides appropriate focus on complex loss mitigation functions.

With the implementation of the CARES Act and the increase in the requests for help by borrowers affected by the COVID-19 pandemic, FMC implemented system and website automation. Included in this automation were website enhancements allowing borrowers to request, extend, or cancel forbearance requests. Internally, FMC developed scripts to automate forbearance plan set-up and document intake.

Processes, controls, and metrics we considered include the following:

• Underwriting handles all loan types and investors across sites.
• Modifications are reviewed twice prior to being booked to the system.
• The business control team, completes in-process reviews of loss mitigation including intake, 100% review of denials, and cases closed for incompleteness, and a sample of approvals.
• The average number of days to a workout decision was 20, which is comparable to peers.
• The ASA was much higher than peers, while the abandonment rate was slightly better than the average reported by peers' (see table 4, above).

Foreclosure and bankruptcy

Default services at FMC includes foreclosure, property preservation, default support (including invoicing, title cures, litigation, valuations, and pre-sale property preservation), bankruptcy, and claims. Since our last review, multiple organizational structure changes were made in default services including: non-cash bankruptcy functions were outsourced to an attorney, the foreclosure referral department was moved from loss mitigation to foreclosure, all of the default functions transitioned to the Jacksonville, Fla. site from the San Dimas, Calif. site, and claims processing was brought back in-house and partial claim administrative functions were moved from loss mitigation to claims.

Key default attributes, controls, and metrics include:

• TEMPO, a default management and loss mitigation system, is used for default workflows and communication with attorneys
• A pre-foreclosure referral review is completed to ensure compliance with all regulatory guidelines.
• All referrals go through a three-tier review.
• Document execution is managed through a TEMPO queue.
• A separate title curative team works with inside and outside counsel.
• FMC completes four checkpoints prior to sale (at 30 days, 15 days, seven days, and 24 hours).
• Monthly calibration meetings are held with loss mitigation to review files with foreclosure holds.
• A systemic daily scrub of the portfolio is done to identify changes in bankruptcy status.
• The bankruptcy department has a dedicated cash resource for payment posting.
• A proprietary best disposition tool is used with FHA and VA loans.
• FMC reported no claim denials as of June 30, 2020.

While the majority of foreclosures have been on hold due to COVID-19-related moratoriums, FMC has not downsized its default staff but has redeployed staff across servicing to areas needed. Additionally, they have leveraged their law firm's staff for special projects. To monitor law firm viability, FMC has been performing periodic "health checks" (in addition to its standard attorney oversight).

We believe FMC default services operates in a controlled and effective manner to manage loans in default.

Real estate-owned (REO)

FMC uses two auction vendors for its default auction program driven by the investor and insurer. The intent of this program is to drive up third-party sales at foreclosure sale in order to reduce costs.

FMC has limited REO inventory due to the fact that most of its total portfolio is government- or government-sponsored enterprise owned. For the REOs, FMC uses a vendor to manage the process. FMC reported the following key REO metrics, which were all better than those of peers:

• Gross sales-to-market ratio of 98%;
• Average inventory turnaround time of 202 days;
• Average days-to-market and asset post-eviction-to-closing of 141 days; and
• Average loss severity of 6%.

Financial Position

The financial position is SUFFICIENT.

Related Research

• Freedom Mortgage Corp. AVERAGE Residential Primary Servicer Ranking Affirmed; Outlook Stable, Feb. 3, 2021
• Select Servicer List, Feb. 3, 2021
• Servicer Evaluation Spotlight Report™: Environmental, Social, and Governance Factors Have Consistently Powered Our Servicer Evaluation Rankings, Nov. 16, 2020
• Servicer Evaluation Spotlight Report™: U.S. Residential Mortgage Servicers Gear Up To Face COVID-19 Related Challenges, April 10, 2020
• Servicer Evaluation Spotlight Report™: Internal Audit: A Critical Line Of Defense, Feb. 14, 2020
• Servicer Evaluation: Freedom Mortgage Corp., Sept. 12, 2019
• Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019