Ranking Overview
	Overall ranking	Subrankings
		Management and organization	Loan administration	Outlook
Servicing category
Residential primary	ABOVE AVERAGE	STRONG	ABOVE AVERAGE	Stable
Residential subprime	ABOVE AVERAGE	STRONG	ABOVE AVERAGE	Stable
Residential special	ABOVE AVERAGE	STRONG	ABOVE AVERAGE	Stable
Residential subordinate-lien	ABOVE AVERAGE	STRONG	ABOVE AVERAGE	Stable
Financial position
SUFFICIENT

Rationale

On May 13, 2021, S&P Global Ratings affirmed its rankings on Specialized Loan Servicing LLC as a residential mortgage primary, subprime, special, and subordinate-lien loan servicer at ABOVE AVERAGE. The outlook on the rankings is stable.

Our rankings reflect:

• SLS' experienced management and staff, with very low overall turnover levels.
• The Computershare Loan Services (CLS) enterprise compliance management system and governance framework designed at the enterprise level and uniformly cascaded to SLS.
• CLS' enterprise-level direct oversight and support of key control functions, such as vendor management, IT, complaint management, and lines of defense.
• SLS' strong internal control environment with multiple lines of defense, enterprise risk management and analytics, and systems automation to support each function.
• SLS' well-designed information technology (IT) infrastructure, applications, and controls surrounding cybersecurity.
• SLS' innovative use of technology to automate the COVID-19 pandemic forbearance plan application and management process for customers. The automation included texts and email communications during each stage of the process, as well as personalized videos to explain the concept of forbearance and the process steps.
• SLS' servicing performance metrics, which are competitive with other ABOVE AVERAGE ranked peers. In addition, the company's sound call center metrics generally performed better than peers during the first half of 2020 with the onset of the COVID-19 pandemic and increased call volumes.
• SLS' good focus on systems and workflow automation throughout the loan administration processes.
• SLS' solid servicing strategies for first and subordinate-lien loans, and robust default management practices and loss mitigation technology to effectively manage nonperforming and high-risk loans.
• SLS' increased portfolio delinquency levels (similar to other servicers) due to the COVID-19 pandemic, which could present future operational challenges.
• SLS' regulatory settlement with the Consumer Financial Protection Bureau (CFPB) in May 2020.

Since our last review, SLS entered into a regulatory settlement with the CFPB. The settlement noted allegations related to the handling of foreclosure actions and the timely submission of loss mitigation evaluation notices to borrowers. SLS was required to pay a civil money penalty of $250,000 and to provide redress and a waiver of borrower deficiencies to affected borrowers in the amount of $775,000. The CFPB found that the allegations were related to loan activity from 2014 and 2015. In accordance with the CFPB's consent order, SLS developed a redress and compliance plan. Management says all servicing practices related to the settlement and allegations were remediated in 2015 and 2016.

SLS maintains a 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.

Since our prior review (see "Servicer Evaluation: Specialized Loan Servicing LLC," published July 25, 2019), the following key changes/developments have occurred:

• SLS' headquarters were relocated to Greenwood Village from Highlands Ranch, Colo.;
• A web chat as an additional borrower communication option was implemented.
• The head of the escrow administration department was replaced with an industry-experienced candidate.
• The company continued its expansion of robotics process automation to include additional loan administration processes.
• SLS completed electronic notes integration with the MERS System and received government-sponsored enterprise approvals to service electronic notes.
• The interactive voice response (IVR) menu tree was enhanced so that a customer's call is routed to the most skilled agent for the specific call type/reason for the call.
• The use of text and email electronic customer communications was expanded for alerts and notifications.
• Ideation labs were implemented to better understand customer and client needs and assist the business units with enacting enhancement projects.
• Self-service digital solutions were created for customers to manage and understand their COVID-19 forbearance through web, live chat, IVR call-back, two-way text, and interactive self-help videos.
• The COVID-19 customer forbearance request and extension processes were automated, including email and text notifications at each stage of the process.
• COVID-19 operational enhancements were implemented, which includes transitioning most staff to remote working, shifting operations staff to assist call centers for increased call volumes, and proactive communication to borrowers seeking pandemic-related payment assistance.

The outlook on each of the rankings is stable. SLS continues to invest in its servicing operations and technology commensurate with its measured overall portfolio growth. The operations are supported by the company's experienced management team, strong internal control environment, good process workflow automation, and competitive servicing performance metrics. We will continue to monitor the CFPB settlement action plans and any operational challenges SLS could experience (similar to other servicers) as a result of the COVID-19 pandemic and its effects. We believe SLS will remain a capable and effective servicer of prime, subprime, special-serviced, and subordinate-lien mortgage loans.

In addition to conducting a virtual meeting with servicing management, our review includes current and historical Servicer Evaluation Analytical Methodology data through Dec. 31, 2020, as well as other supporting documentation provided by the company.

Profile

Servicer Profile
Servicing location	Greenwood Village, Colo. and Tempe, Ariz.
Loan servicing system	Sagent Lending Technologies' LoanServ
Portfolio types	Prime, special, subprime, and subordinate-lien
As of Dec. 31, 2020
Number of servicing employees	1,091
Volume (mil. $ unpaid principal balance)	115,861
Loan count	687,361

A group of seasoned mortgage industry professionals created SLS, an independent third-party servicer, in August 2003. In December 2011, SLS was acquired by Computershare Ltd., a leading financial services provider for the global securities industry. Since May 2016, Computershare Ltd. has completed a number of acquisitions that have grown its U.S. mortgage business and created a lifecycle of mortgage services. Furthermore, the Computershare Loan Services (CLS) entity was also created, through which SLS and the other acquired entities report.

SLS has continued to have modest growth in its total residential servicing portfolio. The prime portfolio, despite a slight reduction during 2020, has grown since our last review, as has the special-serviced portfolio. The prime portfolio unpaid principal balance (UPB) increased by approximately 16%, to $84.9 billion from $73.3 billion as of April 30, 2019, while the special portfolio increased by 37% from $9.2 billion. The subprime portfolio decreased by 8%, while the subordinate-lien portfolio decreased by 32%, primarily due to a reduction in closed-end second liens (see table 1).

Table 1

Portfolio Volume
	Prime		Subprime		Special		Subordinate-lien
	Units (no.)	Volume (mil. $)	Units (no.)	Volume (mil. $)	Units (no.)	Volume (mil. $)	Units (no.)	Volume (mil. $)
Dec. 31, 2020	409,269	84,951.17	97,423	14,209.95	73,652	12,479.42	107,017	4,220.43
Dec. 31, 2019	421,115	84,665.48	91,131	14,305.77	39,882	7,686.61	129,482	5,289.96
Dec. 31, 2018	305,390	62,019.77	97,357	18,157.71	48,864	9,614.41	81,981	2,668.63
Dec. 31, 2017	215,497	44,652.22	65,761	11,433.47	46,889	9,369.51	96,807	3,077.75
Dec. 31, 2016	99,100	23,940.73	81,139	14,271.05	42,480	9,203.01	106,988	3,961.42

The servicing portfolios' geographies remain diverse, with the primary concentrations in California and Florida (see table 2). In addition, SLS' servicing portfolios' investor mix has remained largely unchanged since our last review (see table 3).

Table 2

Portfolio Distribution By State
Prime			Subprime			Special			Subordinate-lien
Top five states	Units (%)	Unpaid principal balance (%)	Top five states	Units (%)	Unpaid principal balance (%)	Top five states	Units (%)	Unpaid principal balance (%)	Top five states	Units (%)	Unpaid principal balance (%)
California	13.80	20.48	California	16.42	30.14	Florida	12.81	11.72	California	16.88	28.85
Louisiana	11.48	10.66	Florida	9.49	8.61	California	11.20	16.64	Florida	10.05	10.93
Florida	5.39	4.80	Texas	7.28	3.59	New York	8.41	15.22	New York	5.02	7.34
Texas	5.16	4.42	New York	5.75	8.69	Illinois	6.06	5.12	Georgia	4.37	2.94
North Carolina	3.34	2.53	Ohio	4.35	3.09	Texas	4.88	3.18	Illinois	4.23	3.52
Other	60.83	57.11	Other	56.71	45.88	Other	56.64	48.12	Other	59.45	46.42
Total	100.00	100.00	Total	100.00	100.00	Total	100.00	100.00	Total	100.00	100.00

Table 3

Portfolio Breakdown By Investor (%)
Investor	Prime	Subprime	Special	Subordinate-lien
Fannie Mae	38.15	0.00	0.00	0.00
Freddie Mac	37.16	0.00	64.18	0.00
Ginnie Mae	4.55	0.00	0.00	0.00
Mortgage-backed securities investor	13.85	87.58	31.76	67.82
Portfolio	0.00	0.00	0.05	0.00
Other investor	6.29	12.42	4.01	32.18
Total	100.00	100.00	100.00	100.00

SLS' portfolio growth strategy includes re-performing loans, government sponsored enterprise (GSE) subservicing, non-agency products, co-issue arrangements and programs, private-label servicing, and a newly developed recapture origination program with an external lending partner. In addition, all mortgage servicing is performed from the Greenwood Village, Colo. and Tempe, Ariz. locations.

Management And Organization

The management and organization subrankings for primary, subprime, special, and subordinate-lien servicing are STRONG.

Organizational structure, staff, and turnover

SLS and its senior managers are centralized under CLS, with SLS' CEO also the president of CLS. SLS' COO oversees the day-to-day operations, with various senior managers that manage the performing and special servicing businesses. Highlights include the following:

• Senior and middle management average 18 and 13 years of industry experience, respectively. The senior management experience is lower than peers', while middle management experience is similar to peers'.
• Senior and middle management average eight and seven years with the company, respectively, with both metrics similar to peers'.
• Management and staff turnover rates of 2% and 3%, respectively, which are better than peers'.

Training

SLS has dedicated training staff in its headquarters and Tempe sites. The training department uses a centralized learning management system to track all training hours. Highlights and controls of the process are as follows:

• Since our last review, SLS has focused on converting its classroom-based and instructor-led training into e-learning or distance learning for staff.
• Newly hired customer service, collector, and loss mitigation agents receive approximately three weeks of classroom instruction and an additional two weeks of on-the-job training.
• All employees receive 16 hours of annual regulatory compliance training and are required to pass all regulatory training with a 90% or higher score.
• All customer-facing employees must complete one hour of Fair Debt Collection Practices Act training and pass an exam.
• A leadership development program offers a specific set of classes for new people managers that focus on key behaviors and values.

Systems and technology

We believe SLS has a robust technology environment and systems to meet its portfolios' servicing requirements. The company continues to focus on technology enhancement projects, including robotic process automation (RPA), to further streamline and automate servicing tasks across various loan administration functions. In addition, SLS has well-designed data backup routines and disaster recovery preparedness.

Servicing system applications

SLS operates in a highly automated environment that uses a combination of vendor and proprietary systems. The company uses Sagent Lending Technologies' LoanServ application for its core servicing system, and its proprietary enterprise workflow system, Loan Activity Management Platform (LAMP), throughout its operations.

SLS has a borrower-facing website that is mobile- and tablet-optimized and offers the ability to make a payment, setup and manage automatic electronic payments, view account activity and statements, secure messaging, upload documents, obtain loss mitigation assistance and documents, and view self-help videos and frequently asked questions. The website also fully supports SLS' private-label clients and customers.

SLS has deployed a number of RPA projects throughout its operations to automate redundant and repeatable tasks, with the purpose of redeploying the time savings back to the business for other tasks. RPA technology and projects are led at the Computershare Ltd. enterprise level and are deployed by dedicated teams across the global operations. The CLS North America operations have a dedicated RPA team that develops and deploys all projects and conducts user acceptance testing using the Blue Prism application. The application and delivery framework provide step-by-step process flows, code reviews, and stage gates for releasing processes into production. The RPA team also provides process documents, daily reporting, and direct line of communication with the business unit on all processes in production.

Business continuity and disaster recovery

We believe SLS maintains a well-developed disaster recovery and business continuity plan (BCP), 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. Highlights and controls of the process are as follows:

• Business impact analyses (BIA) and BCPs are updated at least annually, and as needed if disaster events occur, to determine critical vendors and recovery time objectives, among other factors.
• The BIAs and BCPs are managed in SLS' enterprise governance, risk, and compliance (GRC) tool.
• Business continuity training is mandatory for all staff.
• SLS has a recovery services agreement in place with a vendor for additional working and call center space with mobile trailers, if necessary.
• SLS maintains fully redundant data centers with synchronous data replication between primary and secondary sites and asynchronous replication to the tertiary site.
• There are additional incremental point-in-time backups of system data that are stored at an offsite archival facility.
• SLS conducts emergency and disaster recovery testing at least annually, with call-tree testing on a monthly basis. No significant findings were discovered during the latest disaster recovery test and call-tree exercise.

Cybersecurity

Computershare Ltd. maintains a global information security program and department that drives the development, deployment, and management of information security and risk management. Computershare Ltd. maintains the security of its networks and systems with industry-recognized password requirements, role-based security access, network scanning and intrusion detection systems, enterprise-wide antivirus solutions, and network firewall monitoring. There is an annual independent, third-party penetration and vulnerability test. There is also a global information security awareness program to educate staff about data security, and annual phishing training for employees with monthly phishing tests. In addition, there are periodic tabletop exercises conducted to simulate a response to a cybersecurity event.

Internal controls

We believe SLS has a robust internal control environment, with multiple lines of defense that are independent of the business units. The lines of defense are further supported by SLS' GRC tool that is used throughout the control environment.

Policies and procedures

In our view, SLS has comprehensive policies and procedures (P&Ps), with a centralized system for updating and distributing them to staff. The compliance department is responsible for the overall administration, tracking, and updating of the P&Ps, which go through a recertification process twice a year. New or updated P&Ps and letters must receive approval according to SLS' authority-level matrix. All changes are tracked and approved in the change management system and communicated to staff. The letter library and templates are also managed in a centralized system, with access restricted to specific staff, and there is a letter committee that meets bi-weekly to monitor the function.

Quality assurance and call monitoring

The first line of defense is an interdepartmental quality review and monitoring team led by business control groups and the quality assurance (QA) call monitoring team. The business control groups are responsible for risk management, project management, audit research and response, proactive in-line testing, process improvement, and monthly reporting of exceptions for each corresponding business area. The first line of defense validates all business unit action plans prior to submission to internal audit for closure.

The business control groups review exception reports, which are run daily across SLS' entire portfolio. Staff review the flagged exception and account to determine validity and any necessary remediation. The results are summarized monthly, trended, and shared with senior management and the executive committee. Identified systemic issues are captured in the GRC tool and require formal remediation by the business units. In addition, specific monthly quality reviews are performed to validate compliance with the CARES Act forbearance, foreclosure, and other applicable requirements.

The QA call monitoring team is responsible for conducting monthly call monitoring evaluations of customer-facing call center staff. SLS uses industry-standard call monitoring software, including screen capture and speech analytics capabilities for all calls. The QA team conducts a monthly review of 10 calls per agent, and uses a standard set of evaluation questions to grade each call. Since our last review, the number of calls monitored by QA was reduced to 10 from 15, based on the number SLS' peer servicers monitor and to provide QA staff additional time for root cause analysis. In addition, QA provides the agent a scorecard that details any opportunities for improvement. The scorecard criteria are agreed upon by the QA team and the operational departments. Call monitoring results are reported monthly to business unit leaders and senior management.

Risk and control self-assessments (RCSAs) are steady state for all business units, with continued enhancements to documentation. The key risk indicators are developed and reviewed at the SLS level, and feedback from the parent company risk structure is also considered and incorporated. Since our last review, the RCSAs and supporting documentation have also been transitioned into the GRC tool.

Compliance and quality control

SLS' second line of defense is the compliance department, which determines the servicing and default operations' compliance with regulatory requirements. The chief risk officer oversees the compliance, legal, and risk functions. Highlights and controls of the process are as follows:

• SLS maintains staff attorneys and external counsel that monitor laws and legislative changes.
• The change management processes are housed in the GRC tool, which provides a platform to electronically review and approve necessary changes. There is also a dedicated change management committee that oversees larger changes and projects.
• There is a servicing compliance risk assessment every 12-18 months.
• The training department coordinates with compliance and the business units to develop training, addressing any updates to the operational and/or investor requirements.
• The GRC tool is used for risk registers and taxonomy, as well as the tracking and remediation of compliance findings across all lines of defense.
• The compliance department performs monthly testing of the business units against federal and state regulations, and reports findings upon identification.
• Compliance testing developed several targeted testing modules for compliance with the CARES Act. The reviews focused on adherence to forbearance and foreclosure requirements.
• A dedicated testing program for the CFPB consent order was also developed to satisfy the order's requirements and approved compliance plan.

Internal and external audits

The third line of defense is CLS' internal audit department. CLS' chief audit executive and the internal audit department report to the global risk and audit committee of Computershare Ltd.'s board of directors. Since our last review, CLS further refined its organization by creating a head of global IT audit, and it created a staff audit pool to more efficiently allocate staff resources to audits. Management noted that staff allocated to perform audits of the loan services entities, including the SLS operations, have prior audit experience in those areas.

The internal audit department assesses the risk of all auditable entities on a fiscal-year cycle; the audit plan is developed from the risk assessment, with high-risk audits conducted every 12-18 months. The internal audit department also reviews each department's RCSA during the audit to validate that it identifies the appropriate controls.

Internal audit also provides risk advisory services to the operations. The aim is to assist the organization in enhancing its governance processes and risk management. The services include risk advice for projects, assistance with risk identification and evaluation, coaching management in responding to risks, and performance of readiness assessments for compliance regulations or new products and services.

We reviewed the internal audit plans for fiscal 2020 and 2021, including a description of each internal audit and review schedule. We also reviewed audits reported by internal audit in 2020 and 2021, which detailed findings that were in the process of being remediated by the business unit or were closed and validated by internal audit. The findings and action plans for each of the lines of defense are tracked in the GRC tool and reported on through senior management and board-level committees on a regular basis. We believe the internal audits and other reviews are thorough and appropriately communicated to departmental managers for corrective action as necessary.

We reviewed the 2019 and 2020 Regulation AB, uniform single attestation program, and SSAE 18 reports. There were no material findings noted in these external audit reports.

CLS and SLS maintain a robust board and management framework, with periodic committees that meet to oversee the risk within the servicing and default operations. Furthermore, the SLS COO conducts additional monthly business reviews with senior managers and monthly reviews of complaints and nonrecoverable advance amounts.

Complaint management

In our view, SLS has a comprehensive process to track, research, and respond to borrower complaints, notices of error, and verbal escalated complaints. Highlights and controls of the process are as follows:

• A defined complaint policy and centralized complaint tracking system are used to monitor timeliness of response.
• Customer-facing lines of business address non-escalated borrower requests, while customer support tracks, reports, and confirms resolution of all other verbal or written requests.
• Responses to notices of error and regulatory complaints go through a secondary review before submission to the borrower to validate completeness and accuracy, as well as to validate that all regulatory items are addressed.
• The executive services team (within customer support) is the point of contact for coordinating any borrower complaints regarding in-flight loss mitigation or other escalated issues for servicing transfers.
• Executive services agents are also available for call center agents to arrange a follow-up call for any escalated borrower complaints.
• Complaints are trended monthly and monitored for high-risk triggers, such as compliance, legal, or other issues that require special handling.
• A monthly complaint analysis meeting is held, where executive and senior management and compliance review complaint trends, as well as the root cause and solutions.
• A social media monitoring team at the enterprise level escalates customer complaints and engages with the executive services team for resolution.
• SLS responds to complaints within established time frames, with SEAM metrics noting acknowledgement of complaints within one day of receipt and resolution of complaints within an average of 19 days.

Vendor management

We believe CLS and SLS have effective methodologies in place for assessing third-party vendors. The corporate vendor management function within CLS' parent company, Computershare Ltd., is responsible for the oversight of procurement, onboarding, and due diligence of vendors. The SLS business units are responsible for the day-to-day management of the vendor. Highlights and controls of the process are as follows:

• Vendor management conducts an initial and annual risk assessment of the vendor and the service provided to arrive at a risk tier (1-Critical, 2-High, 3-Medium, and 4-Low).
• Vendors are assigned a risk tier rating on a variety of factors, such as information security, operational controls, business continuity, etc.
• Critical Tier 1 vendors, which cover most of the servicing vendors, have monthly scorecards and perform regular due diligence annually.
• The SLS business unit issues the scorecard to the vendor and uses the results to monitor a vendor's adherence to the contract service-level agreements and other requirements.
• The scorecard performance, monthly key risk indicators, and business unit management meetings with the vendors are determinants in the evaluation, need, and frequency of onsite reviews for vendors.
• When issues identified with vendors are considered significant, a formal remediation is drafted and tracked within the risk management system.
• CLS corporate vendor management pulls the vendor scorecards monthly to review the results, and reports issues and trends quarterly to the risk and audit committee of the board.
• A review is conducted of a vendor's BCP, how the vendor is testing that plan and when, and failover provisions. SLS business units are also required to test the BCP with the vendor.

Default attorneys are identified as critical vendors managed by a dedicated default vendor management group, with oversight by corporate vendor management. The foreclosure business unit also provides monthly performance reviews of attorneys and is involved in any escalated issues. The review results are published in a monthly scorecard to measure each firm's performance, quality, and compliance based on GSE timelines. Performance calls occur monthly to address any issues noted. Onsite (or virtual) reviews of attorneys are conducted by the default vendor management group, determined by the firms' geographic concentrations and SLS' current default actions. Since our last review, CLS and SLS have been closely monitoring firms' financial wherewithal due to COVID-19 and its effects and have increased the frequency of financial reviews to every six months.

Insurance and legal proceedings

SLS has represented that its directors and officers, as well as its errors and omissions insurance coverage, are in line with the requirements of its portfolio size.

Since our last review, SLS entered into a consent order filed on May 11, 2020, with the CFPB related to the handling of foreclosure actions and the timely submission of loss-mitigation evaluation notices to borrowers. The CFPB required SLS to pay a $250,000 civil money penalty and to provide redress and a waiver of borrower deficiencies to affected borrowers in the amount of $775,000, and certain other reporting requirements in the form of a redress plan.

Loan Administration--Primary/Subprime/Special/Subordinate-Lien Servicing

The loan administration subrankings for primary, subprime, special, and subordinate-lien servicing are ABOVE AVERAGE.

New-loan boarding

SLS electronically boards 100% of mortgage loan data to its servicing system, and a proprietary software automates the data mapping and quality control processes for new loans boarded. The system is robust and supports a broad number of file formats, provides a singular flow of data from the source to downstream systems, performs logical data validations of more than 600 checks, and queues applicable errors for manual review. The loan transfer and onboarding team can also create unique edit checks and validations particular to each portfolio of loans being boarded.

There is a dedicated QA team that conducts checks on foreclosures at the time of loan transfer, home equity line of credit (HELOC), adjustable-rate mortgage change history, and the accuracy of critical data fields, such as UPB and payment amount. The system has validations in place to help identify any exceptions, which SLS then examines pre- and post-boarding through loan file images.

SLS maintains a robust in-flight loss-mitigation tracking process for incoming transfers that includes a 60-day hold period following the transfer date, which prevents late charge assessments and credit bureau reporting. The single point of contact (SPOC) makes an introductory call to review the borrower's current status in the loss-mitigation process, determines changes in the borrower's reason for default or financial situation, notifies the borrower of outstanding documentation, and verifies the accuracy of contact information. In addition, a sample of imaged loan documents is reviewed by the quality control (QC) department before boarding to determine overall validity and quality. Special handling system codes identify any loans in loss mitigation that have transferred without all necessary documents or data.

Payment processing

SLS has a solid cash management operation. Highlights and controls of the process are as follows:

• Electronic payments account for 93% of collected payments. The remaining 6% of payments are manually posted, which is lower than for peers.
• SLS uses an online decision module through its payment lockbox vendor to review rejected items electronically the same day.
• There is workflow software with standardized issue templates for cash corrections and research payment cases.
• Cashiering has a recurring draft module that allows customers to schedule automated clearing house drafts on a weekly, biweekly, and semi-monthly basis.
• Managers balance teller work daily, which includes reviewing the custodial and clearing accounts for items such as shortages and overages. Team member audits occur daily to confirm accuracy.
• 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.
• There was no staff turnover reported, which is better than for peers.

Investor reporting

The investor reporting group reports, remits, and reconciles accounts according to industry practices and investor guidelines. Managers review all reconciled accounts. SLS uses Alan King & Co. SBO 2000 system, which we consider a positive for a primary servicer. The system combines the cashiering, data entry, accounting, and investor reporting functions. Highlights and controls of the process are as follows:

• The department handles investor reporting responsibilities on more than 1,500 securities.
• The data gathering process is 100% automated--maximizing the integrity of investor data--and SLS maintains 100% electronic reporting and remitting.
• Investors have direct access to SLS-serviced mortgage loans, as well as pool and individual loan information for custom reports (see table 3).
• There are daily departmental quality checks performed to validate controls.
• There is a quarterly review of P&Ps to validate alignment with the changing client base and diverse investor requirements.
• SLS reported no aged open reconciling items over 60 days, which is similar to peers.
• There was no staff turnover reported, which is better than for peers.

Escrow administration

SLS' tax and insurance functions are fully outsourced to separate vendors, which also manage the customer calls. Highlights and controls of the process are as follows:

• Nonreimbursable servicer tax penalties were $0.02 per loan, which is similar to peers and a significant improvement in this metric since our last review.
• The tax vendor's average speed of answer (ASA) and abandonment rate was 15 seconds and less than 1%, respectively, similar to peers.
• The insurance vendor's ASA was 19 seconds and the abandonment rate was 1.1%, similar to peers.
• SLS' insurance vendor manages loss draft claims with a website that provides customers a centralized location for claim packets, instructions, frequently asked questions, and claim status information.
• SLS conducts annual onsite (or virtual) audits and monthly scorecards of each vendor's work performance and communicates and/or meets regularly with its vendors.
• Department managers monitor exception reporting, with key performance indicators, to track all outstanding items for each vendor. In addition, the escrow administration team monitors customer calls with both vendors on a monthly basis to assess quality.
• There was 6% staff turnover reported, which is better than for peers.

Mortgage reconveyance

SLS uses a third-party vendor for its mortgage reconveyance process. The company reported that 1.78% of reconveyances in processing were out of statutory compliance, with minimal penalties reported as a result of the noncompliance. Additionally, SLS maintains a monthly scorecard on the vendor and weekly loan-level calls to review any issues.

Special loans administration

There are dual reviews of the adjustable-rate mortgages (ARM) indices' research and system inputs to ensure the information's validity. There is a QA sample review for all ARM changes for affected plans. Additionally, controls and procedures are in place to process and apply Servicemembers Civil Relief Act (SCRA) requests and benefits, including for all newly boarded portfolios with in-flight loss mitigation.

Customer service

In our view, SLS provides a solid level of customer service. Customer care staff handles welcome calls and current accounts up to the late-charge date, and are cross trained in all loan product types. There is skills-based routing of calls with more complex calls to higher-skilled agents. Customer service uses LAMP to provide consistent workflow and logging of customer requests. Highlights and controls of the process are as follows:

• Since our last review, SLS transitioned most of its customer service staff to working from home in response to COVID-19, with a small number of staff socially distanced in its locations. The customer service department also leveraged its cross-trained agents in other departments and new hires, and created additional self-service functionality for customers, such as chat functionality and self-help videos on the website to manage increased call volumes.
• SLS enhanced LAMP to provide borrowers the ability to self-service for the initial request and set up a COVID-19 forbearance plan. Borrowers also receive text and email notifications at each step of the process.
• There was no management turnover and 24% for staff, with the staff metric improving slightly since our last review. These metrics are better than for peers.
• A three-tier staff certification program that provides career pathing.
• The borrower website is optimized for mobile and tablet viewing, and there are YouTube videos that assist borrowers with items such as understanding their escrow statement and other topics.
• The voice response unit capture rate is 66%, which is better than for peers.
• The first call resolution rate is 89%, and approximately 73% of customers are registered website users. We consider both metrics to be good.
• There are post-call and web surveys, with net promoter score measurements, to gauge borrower satisfaction.
• Management meets monthly to focus on the voice of the customer through a review of surveys, complaints trending, and root cause analyses, and to review call listening evaluation results. Department managers also review the IVR and website regularly to "live" the customer experience and determine where improvements can be made.
• The QA call monitoring team monitors a minimum of 10 calls per month per agent, and department supervisors and managers monitor an additional five calls per month per agent, which is better than peers. In addition, there are weekly call calibration sessions with clients that provide additional feedback opportunities.

The QA team maintains a one-on-one training initiative for agents not meeting standards. The agents are identified by QA through evaluations, trends, and the need for prior coaching by supervisors. QA provides the agents' supervisors with a training guide after the one-on-one training to conduct follow-up sessions and to reinforce the teachings. In addition, QA performs annual training for all agents to review the QA evaluation form, dispute guidelines, call selection criteria, and trends analysis to validate agents' understanding of the process.

SLS' call center metrics are generally similar to peer metrics, with the collections abandonment rate somewhat higher than peers' in the current period (see table 4). These metrics also remained stable during the second half of 2019 and the first half of 2020 data periods, with generally better performance than peers in the latter period. We view this and the metrics stability as a positive, especially given the increased call volumes experienced in the first half of 2020 due to the COVID-19 pandemic.

Table 4

Average Speed Of Answer And Abandonment Rate
	Average speed of answer (seconds)	Abandonment rate (%)
Customer service	43	3.34
Collection	51	3.04
Loss mitigation	113	3.13

Default management

We believe SLS has proactive and effective default management processes and strategies to resolve delinquencies and mitigate losses. In addition to servicing performing loans, the company focuses on special servicing of distressed assets for private investors and others, which is reflected in many of its default areas and practices. SLS also employs its robust LAMP technology throughout the default operations to ensure a consistent workflow.

SLS' default operations management and staff exhibit good overall industry experience and tenure levels that are generally similar to peers' (see table 5). However, the management and staff experience levels in foreclosure, bankruptcy, and real estate owned (REO) are somewhat lower than peer averages. SLS' default operations management and staff turnover rates were generally better than peers'.

Table 5

Experience And Tenure
	Management			Staff
	Avg. industry experience (years)	Avg. present employer experience (years)	Turnover rate (%)	Avg. industry experience (years)	Avg. present employer experience (years)	Turnover rate (%)
Collection	26.58	4.50	0.00	2.75	2.38	14.10
Loss mitigation	16.84	6.93	7.41	7.69	6.08	11.04
Foreclosure	12.07	7.76	4.00	6.95	4.96	1.25
Bankruptcy	11.94	8.50	0.00	10.85	6.10	0.00
Real estate owned	7.68	6.00	0.00	7.60	5.15	5.41

SLS' total delinquency rates show a considerable increase for the prime and subprime portfolios, which is representative of the COVID-19 pandemic and forbearance plans, while the special serviced portfolio total delinquency decreased slightly (see tables 6, 7, and 8). These three portfolios also experienced a notable increase in their 90-day and greater delinquency populations. SLS' peers experienced generally similar increases and levels of delinquency for this period.

Table 6

Prime Delinquency Rates
Year	Total delinquency (%)	30-59 days Delinquency (%)	60-89 days Delinquency (%)	90+ days Delinquency (%)	Bankruptcy (%)	Foreclosure (%)	Real estate owned (no.)
Dec. 31, 2020	7.17	1.73	0.74	4.69	0.59	0.99	492
Dec. 31, 2019	3.99	2.34	0.69	0.96	0.62	0.98	316
Dec. 31, 2018	3.48	2.33	0.57	0.58	0.52	0.79	258
Dec. 31, 2017	5.35	3.56	0.94	0.85	0.72	0.57	219
Dec. 31, 2016	2.28	1.26	0.34	0.69	0.55	1.37	238

Table 7

Subprime Delinquency Rates
Year	Total delinquency (%)	30-59 days Delinquency (%)	60-89 days Delinquency (%)	90+ days Delinquency (%)	Bankruptcy (%)	Foreclosure (%)	Real estate owned (no.)
Dec. 31, 2020	21.31	5.73	2.24	13.34	1.59	2.22	70
Dec. 31, 2019	14.03	8.96	2.74	2.33	1.92	2.28	163
Dec. 31, 2018	15.97	12.05	2.35	1.57	1.63	1.55	204
Dec. 31, 2017	17.69	10.41	3.43	3.85	2.23	2.72	290
Dec. 31, 2016	16.80	10.54	3.26	3.00	4.04	2.26	270

Table 8

Special Delinquency Rates
Year	Total delinquency (%)	30-59 days Delinquency (%)	60-89 days Delinquency (%)	90+ days Delinquency (%)	Bankruptcy (%)	Foreclosure (%)	Real estate owned (no.)
Dec. 31, 2020	21.55	4.47	2.26	14.83	4.28	9.92	304
Dec. 31, 2019	22.80	10.13	5.00	7.68	11.18	18.90	1,523
Dec. 31, 2018	24.54	10.05	5.47	9.02	10.27	22.09	2,401
Dec. 31, 2017	27.57	10.37	5.41	11.79	9.96	24.47	2,181
Dec. 31, 2016	27.09	7.72	4.56	14.81	11.00	30.53	2,436

Collections

In our view, SLS has proactive collections practices, solid technology, and experienced staff that use effective methods to identify and contact delinquent borrowers early in the delinquency process. Highlights and controls of the process are as follows:

• There are separate teams to assist borrowers at different delinquency stages: 17-29 days past due are contacted with a customized campaign, and at the 30th day of delinquency, a team point of contact (TPOC) is assigned.
• The TPOC works with the borrower until engaged in loss mitigation, which is when a SPOC is assigned.
• An outbound dialing team with a mix of full- and part-time staff are experienced industry collectors.
• A dedicated analytics team manages the predictive risk-based dialing strategy and model with behavioral risk scoring. The call center technology team meets daily to review the prior day's performance to adjust the model as necessary.
• There are alternative contact methods, using emails and letters and special outbound campaigns to prompt borrower action on items such as automated clearing house setup, reinstatement, and preapproved modifications.
• Specialized COVID-19 forbearance plan outreach campaigns to borrowers that begin 45 days prior to the plan's end. The outreach includes calls, videos, texts, and emails at various points during this period up to the plan's end date to explain the options available.
• Newly boarded nonperforming loans are contacted prior to boarding and are considered high risk. Prior payment behavior and timing, and whether an account was ever 30-day delinquent, are other high-risk considerations.
• SLS uses preemptive calling campaigns, door knockers, and contact incentives (gift cards, etc.) for high-risk loans.
• The QA call monitoring group monitors the quality of the call center staff by listening to a minimum of 10 calls per month per agent, and department supervisors and managers monitor an additional five calls per month per agent. The number of calls monitored is better than that of peers.
• Promise-to-pay success rates are 44% and 35% for accounts 30- and 60-days delinquent, respectively, which are lower than peers'.
• Delinquency transition rates--from higher to lower and lower to higher--were better than peers'.
• Forbearance cure rate is 83% for prime, 80% for subprime, and 69% for special-serviced loans, which we consider to be good rates based on the portfolio type.

Loss mitigation

In our view, SLS takes a proactive approach to loss mitigation, using predictive tools in combination with well-trained customer service and collection staffs to identify loss-mitigation candidates in the early stages of delinquency. SLS' loss-mitigation group is divided into two teams. The first is the SPOCs, who are split between retention and liquidation. The second team includes the underwriting and processing employees, who are also split between retention and liquidation. A team of outsourced offshore staff also handle document intake and indexing. Highlights and controls of the process are as follows:

• Borrowers may download an application for a loan modification from SLS' website and view various loss-mitigation options.
• SLS uses LAMP, which provides workflow automation for the loss-mitigation lifecycle. Additionally, LAMP provides customers the ability to view their loss-mitigation status, determine which documents are missing from an application or process, and upload those documents.
• The teams also use LAMP to guide representatives in the early resolution unit through possible loss-mitigation solutions available to borrowers' according to each investor's specific guidelines (see table 9).
• A net present value analysis is embedded in LAMP that compares the workout solutions to the cost of foreclosure and marketing the property for sale.
• LAMP has a direct data bridge to Freddie Mac's Workout Prospector for its special-serviced loans to prevent any manual data entry.
• A manual ownership team staffed with asset managers focuses on manual dialing and high-touch contact strategies, such as door knocking, gift card incentives, and information packet drops. Management says the high-touch manual dialing this team conducts results in up to 15% higher mitigation pull-through rates.
• Specific outreach campaigns are waged, using high-touch contact strategies to borrowers on COVID-19 forbearance plans who exit the plan still delinquent with no resolution.
• All loss-mitigation decisions (except for streamline flex modifications) are reviewed by inline QA, inclusive of income and expense calculations, before communication to the borrower. Streamline flex modifications receive a minimum 10% sample QA review, which increases if issues are noted.
• There is a 100% quality review of all final modification agreements and short-sale approval letters before mailing.
• There are foreclosure cure rates of 75% for prime, 81% for subprime, and 79% for special-serviced portfolios, which we consider to be good rates.
• The QA call monitoring group monitors the quality of the SPOCs by listening to a minimum of 10 calls per month per agent, and department supervisors and managers monitor an additional five calls per month per agent. The number of calls monitored is better than that of peers.

Table 9

Loss Mitigation Breakdown (%)
Resolution type	Prime	Subprime	Special	Subordinate-lien
Deed-in-lieu	0.00	0.00	0.00	0.00
Short sale	0.02	0.07	0.23	0.00
Repayment plan	0.04	0.00	0.24	0.00
Modification	99.31	99.79	99.53	100.00
Forbearance plan	0.63	0.14	0.00	0.00
Reinstatement	0.00	0.00	0.00	0.00
Other	0.00	0.00	0.00	0.00
Total	100.00	100.00	100.00	100.00

Foreclosure and bankruptcy

SLS employs third-party vendors and LAMP to assist with its foreclosure and bankruptcy processes. Highlights and controls of the foreclosure process are as follows:

• LAMP provides automation and the ability to identify illogical conditions in the foreclosure workflows and timelines.
• A specialized vendor analytics software tool provides the department-enhanced capabilities to manage the foreclosure pipeline and attorney performance. The tool provides the ability to data mine foreclosure performance data, which provides enhanced oversight of attorney performance.
• Foreclosure referrals are electronically uploaded to approved attorneys, who are monitored by SLS through monthly status reports to identify feedback and address any issues.
• SCRA checks occur on a periodic basis from the time of referral through the foreclosure and post-sale processes.
• There is a systemic dual tracking prevention application for referrals and the monitoring and releasing of foreclosure holds.
• A dedicated group oversees resolutions on high-risk and litigated assets and validates that vendors meet SLS' timeline standards.
• There is a dedicated document execution group and a multi-tiered QC process to validate data integrity, timeline adherence, and chain of custody of documents.

Highlights and controls of the bankruptcy process are as follows:

• A third-party vendor is used to manage its core bankruptcy functions. SLS has dedicated staff to oversee the vendor.
• SLS validates data accuracy on active bankruptcy cases using a service transfer reconciliation process between it and the vendor.
• QC checks are performed monthly for all court filings and processes, and scorecards are created and reviewed monthly with the vendor.
• SLS reported a minimal amount of proof of claims filed that were rejected.
• The bankruptcy department relies on the cashiering operations to post a majority of funds using a bankruptcy system module. Any exception funds are researched, and posting instructions are provided by the bankruptcy department.
• SLS' vendor uses software to link Chapter 13 bankruptcy loans to trustees' cases and claims, enabling a more comprehensive tracking capability and assisting with the timely and accurate posting of Chapter 13 payments.
• Discharge audits are completed to validate the accuracy of payment posting and any fees or costs incurred during the bankruptcy.

REO

SLS uses a subsidiary company of CLS, Computershare Property Solutions (CPS), for REO asset management, valuations, and property management. CPS uses customized industry software to provide unique services, create efficiencies, and enhance reporting and quality checkpoints. Highlights and controls of the process include:

• A vendor workflow system for the REO processes.
• A nationwide network of brokers, with each broker receiving a monthly performance scorecard.
• A monthly review of assets, including looking at recent comparable properties.
• A dedicated staff to manage code violations and property registrations.
• A gross sales-to-market value of 93% for the subprime portfolio, 100% for the special-serviced portfolio, and 98% for the subordinate-lien portfolio.
• A net sales-to-market value average of 87% for the subprime portfolio, 94% for the special-serviced portfolio, and 91% for the subordinate-lien portfolio.
• A 93-day, 211-day, and 204-day average marketing time (post eviction to liquidation) for subprime, special-serviced, and subordinate-lien assets, respectively.

Residential subordinate-lien servicing

SLS has a portfolio of closed-end second-lien mortgages and HELOCs. The portfolio totaled 107,017 loans, with approximately $4.2 billion in UPB. HELOCs total 50,444 loans and closed-end second-lien mortgages total 56,573 loans. SLS leverages its mortgage experience and existing technology to service and collect on subordinate liens, substantially in the same manner as first liens, with the exception of HELOC loan administration. The subordinate-lien portfolio (similar to the other portfolios and other industry servicers) experienced an increase in the total and 90-plus-day delinquency levels since our last review (see table 10).

Table 10

Subordinate-lien Delinquency Rates
Year	Total delinquency (%)	30-59 days Delinquency (%)	60-89 days Delinquency (%)	90+ days Delinquency (%)	Bankruptcy (%)	Foreclosure (%)	Real estate owned (no.)
Dec. 31, 2020	19.26	2.82	0.96	15.47	2.10	2.62	29
Dec. 31, 2019	19.94	3.53	1.20	15.22	2.42	2.31	39
Dec. 31, 2018	9.95	4.10	1.18	4.67	1.76	1.11	23
Dec. 31, 2017	11.21	4.18	1.49	5.54	1.72	0.27	192
Dec. 31, 2016	8.18	3.69	1.71	2.79	1.68	0.23	207

SLS has a dedicated HELOC product management department and staff to centralize the management of HELOC processes, with cross-trained customer service agents that handle borrower-facing calls and requests. Highlights and controls of the process include:

• The ability for customers to access funds through credit cards.
• Daily control reports that monitor for items such as bankruptcy filings, senior-lien foreclosures, charge-offs, estates, and other events.
• Quarterly FICO updates, which are obtained on all HELOC accounts.
• A suspension of the line if the delinquency exceeds 30 days, if a bankruptcy filing is identified, or if assistance (such as a COVID-19 forbearance) is requested. In addition, a line is terminated in the event of a loan modification.
• Attainment of an updated property value at the 75th day of delinquency. Upon valuation, SLS determines the combined loan-to-value ratio. SLS will determine the net present value and has a predetermined UPB that it will write off or attempt to recover.
• A payment deferment option to delinquent borrowers between three and six months (for certain clients).

In our view, SLS' closed-end second-lien mortgage and HELOC processes reflect solid controls and use of technology.

Financial Position

The financial position is SUFFICIENT.

Related Research

• Select Servicer List, April 2, 2021
• Research Update: Computershare Ltd. Outlook Revised To Negative On U.S. Acquisition; ‘BBB’ Rating Affirmed, March 24, 2021
• Servicer Evaluation Spotlight Report: Environmental, Social, And Governance Factors Have Consistently Powered Our Servicer Evaluation Rankings, Nov. 16, 2020
• Computershare Ltd., July 7, 2020
• Servicer Evaluation Spotlight Report™: U.S. Residential Mortgage Servicers Gear Up To Face COVID-19 Related Challenges, April 10, 2020
• Servicer Evaluation: Specialized Loan Servicing LLC, July 25, 2019
• Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019

Servicer Analyst:	Mark J Shannon, New York + (404) 989-7655; mark.shannon@spglobal.com
Secondary Contact:	Steven L Frie, New York + 1 (212) 438 2458; steven.frie@spglobal.com
Analytical Manager:	Robert J Radziul, New York + 1 (212) 438 1051; robert.radziul@spglobal.com