Rationale

S&P Global Ratings rankings on Select Portfolio Servicing Inc. (SPS) are STRONG as a residential mortgage subprime, special, and subordinate-lien loan servicer. On July 21, 2021, we affirmed these rankings (see "Select Portfolio Servicing Inc. STRONG Residential Mortgage Servicer Rankings Affirmed; Outlook Stable," published July 21, 2021). The ranking outlook is stable for all the rankings.

Our rankings reflect SPS':

• Competitive experience levels as compared against its peers', although its tenure levels are better;
• Comprehensive training programs;
• Well-designed overall information technology (IT) environment and infrastructure;
• Extensive array of proprietary applications, of which, several are either new or were enhanced over the last 12 months;
• Extensive multiple control mechanisms, such as compliance, quality control, and internal audits, that provide oversight over the servicing operation;
• Comprehensive call monitoring program;
• Good oversight and controls within complaint management;
• Servicing metrics that are very competitive with its peers', with call center statistics continuing to reflect excellent results;
• Sound default management practices; and
• Overall staff turnover rate that is higher than its peers' and with much higher turnover rates in the call center.

Since our prior review (see "Servicer Evaluation: Select Portfolio Servicing Inc.," published July 23, 2020), the following changes and/or developments have occurred:

• SPS augmented its Customer 360 HUB and Topic Tracker applications.
• SPS introduced additional robotic process automation (RPA), and implemented two additional agent-centric software tools known as Customer 360 Insights and CE Virtual Assistant.
• The percentage of registered website users increased substantially due to additional customer communications about the website and mobile application.

The ranking outlook for the residential mortgage subprime, special, and subordinate-lien loan servicer rankings are stable. Although turnover was elevated, as it was for the prior analysis, it did not affect the overall qualitative and quantitative performance metrics. Call center performance statistics remain better than its peer group. The company has continued to invest in automation to increase productivity and efficiencies. SPS remains a highly proficient loan servicer of residential mortgage assets.

In addition to conducting a remote meeting with servicing management, our review includes current and historical Servicer Evaluation Analytical Methodology data, up to and including the period ending Dec. 31, 2020 (unless other stated), as well as other supporting documentation provided by the company.

Profile

SPS is a wholly owned subsidiary of Credit Suisse (USA) Inc. (Credit Suisse). Established in 1989 and acquired by Credit Suisse in 2005, its business strategy is to acquire servicing of whole loans and mortgage-backed securitizations affecting distressed, performing, and re-performing accounts. SPS is an approved Fannie Mae, Freddie Mac, Ginnie Mae, Veterans Administration, Federal Housing Administration, and U.S. Department of Agriculture servicer.

SPS performs servicing activities from Salt Lake City, Utah and Jacksonville, Fla. The Salt Lake City office is the largest site and performs all loan functions with the exception of customer service and early stage collections, which are handled from Jacksonville. SPS maintains a relationship with a vendor in Bangalore, India, to perform certain non-customer-facing activities, as well as technology functions. There are almost 1,000 such personnel based offshore as of March 31, 2021.

The portfolio of residential mortgage subprime, special, and subordinate-lien loans as of Dec. 31, 2020, was almost 900,000 accounts (see table 1). SPS focuses on high-risk accounts--generally nonperforming loans (NPLs) and re-performing loans (RPLs). There are no plans to actively source any government-sponsored enterprise (GSE) loans. Non-qualified mortgage (NQM) volume represents approximately 30,000 accounts as of June 2021, which is mainly unchanged from the prior report. The subordinate-lien portfolio consists only of closed-end second mortgages. In aggregate, SPS expects to board approximately 100,000 accounts in 2021.

A new opportunity presented itself in the form of business purpose loans (i.e., rental properties) that the company now services on behalf of a specific client. These business purpose loans are not included in our analysis nor the data presented in this report.

Table 1

The company also provides support for new origination conduit activities, such as data and interim payment reconciliations. It has three affiliates that provide reinsurance, real estate-owned (REO) broker services, as well as property valuation, inspection, and related services. As of March 31, 2021, the portfolio consists of approximately 8% whole loans, 75% subserviced private label securitizations (PLSs), 4% GSE, and 13% PLS mortgage servicing rights. More than 86% of the aforementioned statistics are loans originated before 2008.

Management And Organization

The management and organization subranking is STRONG for residential subprime, special, and subordinate-lien loan servicing.

Organizational structure, staff, and turnover

• Senior and middle management average 20 and 17 years of industry experience, respectively; the latter of which, is better than peers.
• Senior and middle management have 14 and 12 years of tenure with the company, respectively. Both metrics are better than similar servicers.
• Staff averaged more than nine years of experience and almost five years of tenure with the company per data compiled March 31, 2021.
• The turnover rate is 6% for management and 26% for staff; the latter of which, is higher than comparable servicers.

Management attributed the high turnover as being mainly due to increased competition in its Jacksonville location, planned reductions in its call center after hiring many new staff due to the pandemic, and overall efficiency gains in certain areas resulting from automation enhancements.

Training

• SPS's effective training program uses various methods, including computer-based, online, classroom, and on-the-job (OTJ) instruction to orient new hires with their job responsibilities. Recent college graduates undergo a rotation through different areas over a 12-month time frame to gain a solid understanding of mortgage servicing. Knowledge guides provide staff with details on how to complete certain tasks, including system navigation. Due to the COVID-19 pandemic, much of the training is conducted virtually and any in-person attendance is conducted using social distancing guidelines among other safety measures. Highlights of the program are as follows:
• A 32-hour new-hire orientation, which includes nine hours of compliance training, as well as system training;
• 112 hours of classroom training and 184 hours OTJ instruction for customer contact positions (i.e., customer service, collections, and loss mitigation);
• An average of 75 hours of training for existing staff for the 12 months ending March 31, 2021, which includes several hours of ongoing compliance training;
• Leadership and professional development programs for career advancement; and
• A basic certification curriculum, which covers industry and business knowledge, as well as an advanced accreditation plan, which addresses origination, financial services, and other topics.

Systems and technology

SPS maintains an effective and flexible automated environment, with two data centers. The Black Knight Financial Services' (BKFS) mortgage servicing platform (MSP) is its main system of record.

Servicing system applications 

Systems architecture for business operations includes:

• Ancillary BKFS applications used for areas such as foreclosure and bankruptcy tracking;
• A proprietary system for new loan-boarding data validation;
• An internally developed system used for document imaging that allows staff and customers to view imaged documents and any correspondence as it is integrated with the customer website;
• An internally developed system that assists with pre-foreclosure compliance validations to ensure all default efforts were completed;
• A proprietary customer contact application that works in tandem with MSP;
• A proprietary net present value (NPV) model; and
• A mobile application that has the same functionality as the website, including the ability to upload and view/print documents.

The customer contact application, known as Topic Tracker, references tasks requiring further action with the specific customer by the representative. Staff must complete the outstanding items referenced in the application, whether it informational or critical, and indicate the results. The Customer 360 HUB tool analyzes various loan characteristics/information, so it can anticipate customer inquiries; it also provides pre-populated expected questions and the concurrent answers (which automatically input into the system once completed) to the agent handling the call, inclusive of qualitative and quantitative items affecting the borrower. These categories change as needed based on updates to the loan characteristics. Once the question is answered, it auto-populates the answer into the system without the need for manual intervention. Management has updated each of these applications over the last 12 months adding 10 customer insights into Customer 360 HUB and 16 new topics into Topic Tracker based on an evolution of customer inquiries. They are also available in the mobile application.

RPA was introduced to certain areas (e.g. bankruptcy, loan resolution, etc.). This has resulted in the reduction of many manual tasks through automation. Additional proprietary enhancements to the systems environment include the introduction of the Customer 360 Insights and CE Virtual Assistant, which are discussed in greater detail below.

The Customer 360 Insights application, through data mining on an account (e.g., reviewing website usage, texts, payment history, etc.), analyzes several different data points to develop a sentiment score for the customer, which requires a review if it reaches a certain threshold. This application is a seamless supplement to Topic Tracker and the Customer 360 HUB as it provides additional understanding regarding the customer experience and performance. Based on the results, SPS may undertake additional communication campaigns or possibly analyze the potential for system upgrades.

CE Virtual Assistant provides a real-time call transcription on the system between the customer and agent. Based on the conversation, it either directs the agent through prompts to the appropriate answer available in Customer 360 HUB, through a link to the applicable screen or knowledge base, or to the applicable topic in the Topic Tracker software. Much like Customer 360 Insights, the application is integrated with several aspects of the technology platform so it can quickly and effectively direct the agent to the correct resolution of the customer inquiry.

Business continuity and disaster recovery 

• SPS's disaster recovery and business resumption plans primarily rely on its redundant servicing sites in case of a business interruption.
• The last test of the disaster recovery plan occurred in October 2020, and there were no material findings.
• SPS performs a semiannual review of the business continuity and business impact analysis plans, and semiannual testing of the calling tree.

Additionally, approximately 70% of associates are now working remotely due to the COVID-19 pandemic.

Cybersecurity 

• A dedicated onshore/offshore security operations team is responsible for cyber-security issues.
• There are quarterly phishing campaigns.
• There is a quarterly review and recertification process of user access to critical systems.
• SPS uses internal, as well as third-party services, to conduct penetration testing.
• SPS conducts external penetration testing annually, and rotates the vendor performing testing every two to three years.
• The last external penetration test completed in December 2020 did not disclose any material findings.
• The information security steering committee has monthly meetings to discuss security issues.

Internal controls

SPS's extensive internal controls assist in minimizing loss and reputational risk, while also promoting best practices throughout the operation. The risk management structure consists of several areas, such as compliance, servicing risk management, an ombudsman office, IT audit, vendor risk management (VRM), and legal. The multiple levels of control encompass a formal business self-identified (BSI) issues report, a quality control (QC) operations group, an internal audit program conducted by Credit Suisse, a company audit program (including technology) conducted by servicing risk management (SRM), a compliance testing program, and an Statement on Standards for Attestation Engagements (SSAE) No. 18. The compliance department produces a monthly risk control and self-assessment report based on compliance, SRM, client, and regulatory findings. This report is used to assist in targeting both compliance and SRM audits throughout the year. The company uses an enterprise-wide governance, risk, and compliance system (GRC) to monitor any findings.

The departmental BSI assessments, compliance, IT audit, and SRM programs share the following similar characteristics:

• Audit findings receive a severity rating of high, medium, or low risk, although compliance assigns only a numeric score.
• Findings and remediation plans are stored in the GRC.
• Each group performs a root cause analysis to identify areas requiring improvement.
• The testing plan/scope must be reviewed and approved by an executive committee, such as SPS's oversight committee (OC).
• Results are reported monthly to the OC and quarterly to Credit Suisse's operating committee.
• Once the department corrects an identified issue, it is re-tested almost immediately to confirm the remediation in place is sustainable.

Policies and procedures 

The company's well-written policies and procedures use a combination of narrative and task-specific instructions. SPS has effective controls over the development, drafting, and dissemination of its manuals, which are reflected by the following processes:

• The manuals are reviewed at least annually.
• The unit managers primarily direct the development and updating of policies and procedures based on company or regulatory changes, with input from other areas as applicable (e.g., compliance).
• Each policy and procedure has a risk assessment and control assigned to it that are updated at least annually.
• A change management committee (CMC) consisting of executive and senior managers convenes monthly and provides final approval of revisions.
• A technical writer inputs the new policies and procedures into the system.

A separate application known as an Open Book Tool allows staff access to information about specific laws and regulations. This application provides detailed explanations of statutes and how they apply to SPS's policies and procedures through a side-by-side comparison feature. There is also an annual review process affecting standardized documents to validate that they remain compliant with statutory guidelines.

SPS manages its letters internally rather than using vendors. Letters must be approved within a proprietary application, which requires, as applicable, business unit, compliance, and legal review of any revisions. The CMC also discusses the changes (inclusive of regulatory revisions) as part of its regular meetings. Through the use of proprietary optical character recognition (OCR) software, there is a 100% review of customer letters through a comparison of specific and conditional data points.

Quality assurance and call monitoring 

Each department completes a BSI assessment as needed, which includes a risk description or level, depiction of controls, a citation of the policy or procedure it refers to, applicable regulatory requirement, and client impacts. Risk levels can be high, medium, or low, and the control testing frequency (e.g., daily, monthly, or quarterly) varies based on the process. Control types are classified as being manual or automated for each process, as well as whether they are preventative or detective. The compliance area monitors any BSI issues and verifies that the appropriate controls were implemented to mitigate future risk.

A separate QC operations group in the first line of defense generates daily, weekly, and monthly reports for each business, focusing on individual incident failures within a process. There is a root cause analysis, as well as remediation tracking to help validate the issue, so it does not become a recurring trend. This generally results in revisions to the previously referenced knowledge guides.

SPS has an extensive call-monitoring program affecting its customer service, collection, and loss mitigation departments, in which SRM monitors 12 calls per representative per month and two calls per supervisor monthly. This includes 100% of call recording (100% screen capture) and performance grading via a scorecard. In addition, supervisors monitor an additional four calls monthly per agent and department managers randomly monitor 15 calls monthly. The total amount of staff calls monitored (16 graded calls) is better than relevant peers.

As an additional control during the COVID-19 pandemic, SPS is reviewing 100% of all COVID-19-related customer calls and management reviews all verbal and written COVID-19-related disputes.

Compliance and quality control 

SPS's compliance group is responsible for regulatory examinations and handling related disputes, legal changes, and licensing. It keeps staff abreast of new regulations via website postings and training alerts via the learning management system. Assuming there is a pending regulatory change, the department convenes weekly meetings with the affected business units to discuss its impact. After the law passes, the impact is further reviewed, and any revisions are approved in the CMC. Attributes include the following:

• The department's regulatory testing program focuses on specific regulations, and is conducted monthly and quarterly.
• The program focuses on assessing company compliance with existing regulations and SPS policy.
• There are separate monthly compliance audits that include 26 critical items (e.g., certain Consumer Financial Protection Bureau (CFPB) and Office of the Controller of the Currency rules).
• SPS's compliance testing group and SRM department jointly complete monthly COVID-19 implementation testing providing real-time feedback to operations units and to the OC.
• For the compliance audits, there is an assigned monthly compliance score of which, anything less than 100% requires a response that is presented to the OC.

Internal and external audit 

SPS's SRM department reports to the OC and is responsible for internal audits of the operation. The auditors maintain various industry certifications. Attributes and highlights include the following:

• Operational reviews are conducted annually, and semi-annually for key departments.
• Departments must have a remediation plan in place within 30 days of the report issuance, even if it is an interim solution to the issue.
• Remediation items are continually tracked until they are fully resolved.

SPS's IT audit team, which is now integrated with SRM, tests system-related compliance with the company's policies and procedures that includes testing related to standards applying to the Federal Financial Institutions Examination Council and the National Institute of Standards and Technology frameworks. These reviews are conducted quarterly and focus on areas addressing applications, databases, and physical or environmental controls in IT.

Credit Suisse's internal audit plan requires that SPS be audited on an approximate 24-month cycle. The audit methodology includes:

• A periodic risk-assessment to identify risk exposure, develop an audit plan to address the exposure, review workflows for optimum efficiency, and assess technological needs;
• An audit scope that identifies key areas of risk, including cash management, investor accounting and reporting, and default management; and
• A formal grading of the audit.

We reviewed various SPS SRM audits and compliance tests for 2020/2021, and the SSAE 18 report for 2020. There were no material findings and any identified issues were being or had been remediated by the company. The 2020 Regulation AB reflected no exceptions, which marks the 15th consecutive year of no findings. Management indicated there have been no material findings from any state or client examinations and that the Credit Suisse audits conducted in 2020 (of Operations/Risk Management and IT) disclosed no material issues.

The legal department is responsible for litigation management, operations support to each business unit, legal documentation processing, and SPS business vendors' contract reviews and negotiations.

Complaint management

The ombudsman area addresses regulatory and executive-level complaints, while the customer advocacy group handles notice of errors, and credit and verbal disputes. Complaints received are logged into a dispute tracking system and forwarded to one of the appropriate groups referenced above for investigation. All response letters undergo a quality review within their respective departments. Some additional control mechanisms include the following:

• Analysis of the root cause(s) of any disputes is conducted weekly with management.
• Weekly meetings with various senior management discuss any trends, remediation plans, and procedural changes that may need to be undertaken.
• A daily report summarizing all complaints and their status is reviewed by customer advocacy, the ombudsman group, and executive oversight committee; the chief compliance officer also evaluates the report to verify appropriate regulatory timeline management when responding to complaints.
• SRM receives a weekly trend report to ascertain if there are possible systemic issues and if an issue was caused by SPS or another servicer.
• A monthly report segments complaints by executive, non-executive, and category.
• SRM performs monthly reviews to validate that responses are sent within CFPB requirements, and semiannual regulatory and policy and procedure reviews, verifying timeline compliance with letter responses.

Vendor management

The VRM area is responsible for the initial due diligence and subsequent boarding of vendors. In addition, all vendors must complete an annual questionnaire and forward requisite documents. Each business unit (BU) completes a risk-level determination of the vendor, which is a score based on finances, operations, compliance, and security risk. Upon completion, VRM will assign a risk tier to the vendor. Other highlights include the following:

• Risk tiers assigned are 1, 2, or 3, with tier 1 representing the highest risk.
• Service-level agreements are developed by the BU and approved by VRM.
• The BU handles ongoing monitoring by producing a monthly scorecard for high risk vendors that is sent to VRM, which produces its own scorecard too.
• There is an annual risk assessment of all vendors in order to make necessary changes.
• A VRM executive committee meets quarterly to discuss vendor performance.
• Tier 1 vendors receive an annual onsite review, while tier 2 vendors receive targeted reviews.
• VRM or SRM conducts the reviews with the BU's assistance, although only VRM or SRM produces the report.

VRM is similarly responsible for conducting due diligence of potential legal firms. Upon completion of a risk review, the BU, compliance, and legal departments decide which firms to retain. Firms are subject to onsite reviews on a scheduled basis based on their risk rating, along with other factors. Higher risk firms receive an annual review. All firms must complete and forward certain documents annually to VRM for subsequent continuing approval. The BU manages the overall relationship through the production of a monthly attorney scorecard.

Insurance and legal proceedings

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

As of the date of this report, there were no material servicing-related pending litigation items that would inhibit SPS' ability to continue normal servicing operations.

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

The loan administration subranking is STRONG for residential subprime, special, and subordinate-lien loan servicing.

SPS services a nationwide portfolio with the largest concentrations for its subprime, special, and subordinate-lien loan accounts in California, Florida, and New York (see table 2).

Table 2

The offshore vendor performs certain administrative servicing functions affecting areas such as escrow, document control, investor reporting, and loan boarding, among others, with no plans to expand this to customer contact positions.

New loan boarding

SPS engages in numerous subservicing transfers, both into and out of the company, which allows it to maintain a certain level of expertise in handling these transactions. In 2020, it boarded approximately 230,000 loans. Management indicated they could immediately board 135,000 accounts if needed, and up to 280,000 accounts within 90 days. SPS currently services 114 eNotes through its eVault. Highlights of the boarding process include the following:

• 100% of loans are electronically boarded to the system.
• The OCR tool, which uses continuous machine learning and natural language processing, compares critical data from the servicer to the indexed loan documents.
• The proprietary loan boarding audit system application utilizes the OCR technology to validate more than 160 critical data fields.
• Customer service personnel handle welcome calls, and customer information is available to the representatives pre-boarding so they can respond to questions.
• The imaging system allows for real-time access to customer documents for both the agent and borrower.
• A proprietary pre-boarding quality-control system performs more than 650 logic and financial checks to validate the information.
• A dedicated team researches customer payments made to the prior servicer.
• 100% of newly transferred loans receive a document to system review.
• Key elements of the contracts are embedded into the system to ensure that the servicing staff has access to critical information regarding the servicing of the loan for the client.

Payment processing

SPS maintains an internal lockbox for posting payments. Electronic processing, at more than 99%, is similar to peers. Other highlights include:

• Planet code tracking to ascertain when the borrowers send their payments and concurrently remove the account from collection contact;
• Using information received through the National Data Center bankruptcy system to electronically post payments; and
• A 41% turnover rate that is much higher than peers.

Management indicated that updates to the mobile application and website, among other items, resulted in more borrowers using self-service options, which resulted in a staff reduction. Although the reduction was small, due to the size of the department, it reflects a high percentage.

Investor reporting

SPS has solid controls in place for managing its reporting, reconciliation, and remitting functions. The department handles investor reporting responsibilities on more than 2,300 securities and whole loans. Attributes of investor reporting include the following:

• The electronic reporting and remittance rate is 100%.
• There are minimal open items aged more than 60 days, and none aged more than 90 days.
• The department has a 13% turnover rate.
• Management review and approval is needed for all reports, reconciliations, and remittances.
• There are quarterly audits of loans with stop advances or that have reinstated to validate that correct processes were followed.

Table 3

Escrow administration

SPS escrows on approximately 82%, 93%, and less than 1% of its subprime, special, and subordinate-lien loan accounts, respectively. It uses tax and insurance vendors to assist with the respective escrow items. The department's outsourcing relationship with its insurance vendor includes handling customer calls. Characteristics include the following:

• The department's 42% turnover rate was much higher than peers', but this represents only a small number of personnel because the department size is small. The reduction was also due to various system enhancements that reduced the need for manual intervention.
• There were no non-reimbursable tax penalties, which is similar to comparable peers.
• Lender placement and cancellation rates for homeowner and flood insurance were satisfactory.
• We consider the call center metrics for the insurance vendor to be very good, with a 1.66% abandonment rate and 28-second average speed of answer (ASA).
• Department managers/supervisors review 25 calls monthly that are handled by the insurance vendor.
• SPS' controls over its vendors include monthly performance scorecards, semi-annual onsite visits, and various key metric reports.

Mortgage reconveyance

There is a 100% review of all payoff quotes that have a prepayment penalty, and a 100% review of all release/recording fees prior to generating the calculations, in addition to a 10% daily QC review of all quotes to verify the data. SPS uses an outside vendor for lien release and research functions. Controls for managing the vendor include monthly departmental QC reviews of releases forwarded to the county, and semiannual onsite visits. The company did not incur any penalties for failure to re-convey a loan in a timely manner. Approximately 85% of satisfactions are electronically recorded.

Special loans administration

SPS performs several reviews to confirm if an account is affected by protections under the Servicemembers Civil Relief Act (SCRA). All SCRA benefit denials receive a second review/approval from someone in senior management.

Adjustable-rate mortgages are subject to dual reviews of the indices to confirm their accuracy before system input.

Customer service

The department provides a sound level of service to its customers. All customer service staff members are trained to handle collection calls and provide basic information on loss mitigation. SPS has email addresses on approximately 735,000 accounts. Highlights and metrics include the following:

• There was no management turnover, and staff turnover of almost 44% was much higher than peers.
• Borrowers can access their mortgage information regardless of delinquency status.
• A speech analytics application allows for expedient identification of adverse calls.
• The website offers instructional videos on various topics, the ability to change automated clearing house instructions, and an option to view and/or print loan documents and letters sent by SPS on the account within the last 30 days.
• Quarterly surveys are sent to the customer to gauge satisfaction.
• The first call resolution rate was 87%, which is similar to peers.
• Approximately 65% of customers are registered website users, which is a large increase from the prior 45% from the last report.

Text messaging is used mainly for welcome calls and payment reminders. Additionally, emails are employed to inform customers of account changes, contact borrowers impacted by natural disasters, and to provide new customers with contact information and payment options.

SPS customer contact metrics for both its nondefault and default departments are better than those for its relevant peer group (see table 4).

Table 4

Default management

SPS has good processes for managing its delinquent accounts. All call-centric areas have a bilingual team to assist with non-English speaking borrowers. Management indicated that almost 18% of its portfolio, representing more than 180,000 accounts, was on a COVID-19 relief program at some period as of the 12-month period ending March 31, 2021. Approximately 105,000 of such loans were contractually current (via modification, deferral, or reinstatement) for the period, with the remainder still in forbearance, delinquent, or navigating a loss mitigation option.

Experience levels and tenure throughout default are competitive with peers in most departments, with management experience/tenure being better than peers in several instances. Collection, loss mitigation, and bankruptcy staff turnover, as well as loss mitigation management turnover was noticeably higher than its peers. Remaining management position turnover in the default area were lower than peers (see table 5).

Table 5

Delinquency rates for the subprime and special-serviced portfolios have experienced some (modest) reductions while the special-serviced portfolio experienced an increase in its delinquency profile (see tables 6, 7, and 8).

Table 6

Table 7

Table 8

Collections

SPS has proficient collection methodologies in place to minimize default rates and engage in workout solutions for its customer base. The department is segmented into early- and late-stage collection teams. The early-stage team averages 11 years' experience, while the late-stage team averages six years. The late-stage collection team serves as the single point of contact (SPOC), as well as addresses delinquent accounts. It uses a proprietary risk scoring model to assist in prioritizing contact on delinquent accounts, as well as a best-time-to-call model to optimize contact. Selected characteristics and controls include the following:

• Collectors (and customer service personnel, as applicable) address accounts up to 119 days delinquent.
• Staff members assist in follow-up on missing workout documents.
• There is planet code tracking of forthcoming payments.
• The promise-to-pay success rates for loans 30- and 60-days delinquent are both 82%, which are better than peers.

SPS has a separate team of 35 staff and four managers to address subordinate-lien loans. It does not service open home equity lines of credit. Management averages 11 years of experience and nine years company tenure, while staff averages 12 years of experience and six years of tenure with SPS. This area also handles welcome calls on newly boarded subordinate-lien loan accounts. The one-year (ending March 31, 2021) average ASA and abandonment rates were 30 seconds and 1.8%, respectively, which we consider to be solid. The overall collection approach and designated timeline activity, including charge-off practices, are appropriately proactive.

Loss mitigation

SPS applies fine loss-mitigation strategies for its delinquent borrowers. A team of SPOC personnel are available to assist all delinquent customers beginning on the first day of delinquency. Once the customer is engaged in loss mitigation, an individual SPOC is assigned to the account. A SPOC assignment letter is then mailed within five days and introductory calls are attempted. The individual SPOC remains assigned to the account until the delinquency is completely resolved or the property is liquidated. There are dedicated SPOC groups to handle different circumstances (e.g., bankruptcy, litigation, SCRA, etc.). Reported attributes include the following:

• There is no voicemail because all calls are answered by the assigned SPOC or another team member if the assigned SPOC is unavailable.
• The borrower can request a call back from their SPOC for a specified day and time.
• Customers may download/upload/sign documents through the website. They can also ascertain which documents are missing, incomplete, etc. via the website.
• Staff forwards a letter acknowledging receipt of documents and noting any missing information.
• A proprietary NPV analysis compares various workout alternatives with the cost of carrying the loan through foreclosure and marketing the property for sale.
• Eligible borrowers may sign their modifications electronically through the website.
• There is a matrix incorporated into the servicing system to assist with requirements for loss mitigation for each portfolio and/or client.
• A separate team handles short sales and deeds in lieu of foreclosure inclusive of contacting subordinate-lien loan holders to negotiate a settlement.
• There are several reviews of income and expense calculations and a review of all denied or approved workouts/resolutions.

Table 9

Approximately 63% of the current portfolio was modified by either the prior servicer or SPS as of March 31, 2021. Management noted that the six-month and 12-month modification re-default rate (90-days delinquent) was 11% and 19%, respectively, for the March 2020 to March 2021 period; the average payment reduction was approximately 18%. Management also indicated that as of March 31, 2021, 96% of the delinquent portfolio was in a cash flowing status (the account is delinquent but the customer made at least one contractual payment during the current month) or loss mitigation status (actively working with the customer on a resolution). SPS reports that the large percentage of resolutions classified as "Other" represent reinstatements (see table 9).

Borrowers submitting a request for a mortgage-assistance form must complete the entire application or the website will not allow the form to be electronically transmitted. Management believes this assists the customer by expediently identifying the issue that requires a correction so that there are no delays in processing their application.

Foreclosure and bankruptcy

SPS shows judicious oversight of its foreclosure and bankruptcy accounts. Every file is audited before referral or resumption of foreclosure activity to validate compliance with industry standards. The company uses a proprietary pre-foreclosure audit tool to assist with other aspects of the QC process. The department manages its processes to ensure minimal errors and effective timeline management, as reflected by these factors:

• Staff members check the relevant Department of Defence database several times to ensure that no borrowers regulated by SCRA provisions are improperly referred for legal action.
• There are no curtailed or denied mortgage insurance claims, and 10% of claims receive a QC review prior to submission.
• Separate teams handle contested actions, mediations, and title issues.
• The foreclosure cure rate was 48% for subprime and 49% for special-serviced loans.
• 100% of signed documents receive a QC review, and there is a monthly audit comparing court-filed documents with imaged documents to verify accuracy.
• Staff prepares proofs of claims (POCs).
• There is a 100% review of pre-filed POCs and payment change notices (PCN) to validate the data in addition to other QC checks.
• There is an additional 10% and 100% QC review on filed POCs and PCNs, respectively, to verify data accuracy.
• Additional controls include a 10% sampling performed on tasks completed by associates who set up information on the bankrupt account initially and when the account is closed in the system.
• There are no POCs rejected.

The department has an attorney scorecard that assesses a firm's compliance and performance measures based on various factors. The legal, compliance, and default management areas meet quarterly to discuss these results, as well as current risk ratings and other factors.

Real estate-owned (REO)

Representatives make periodic trips to areas with high concentrations of REO properties to conduct inspections, review brokers, and assess the local market. The department also markets REOs on the company website. SPS cited the following statistics and attributes in its REO processes:

• Financial incentives are used to avoid protracted eviction proceedings.
• A management system allows buyers to submit offers electronically.
• A cost-benefit analysis matrix is used to determine the cost of property repair, although it generally performs repairs only for safety and soundness issues.
• A broker scorecard assesses performance, and the scorecard results determine property assignment.
• There is a 181-day, 239-day, and 184-day average marketing time (post eviction to liquidation) for subprime, special-serviced, and subordinate-lien assets.
• Gross and net sales proceeds for subprime assets average an approximate 100% and 92%, respectively, 109% and 100% for special-serviced assets, respectively, and 100% and 89% for subordinate-lien assets, respectively.
• Average loss severity was 79% for subprime and 44% for special-serviced accounts.

An additional control involves the department conducting post-sale flip audits to determine if there were any illicit actions during the marketing process.

Financial Position

The financial position is SUFFICIENT.

Related Research

• Select Portfolio Servicing Inc. STRONG Residential Mortgage Servicer Rankings Affirmed; Outlook Stable, July 21, 2021
• Select Servicer List, June 3, 2021
• Research Update: Credit Suisse Outlook Revised To Negative On Concerns About The Group's Risk Management, March 30, 2021
• Servicer Evaluation Spotlight Report™: Environmental, Social, And Governance Factors Have Consistently Powered Our Servicer Evaluation Rankings, Nov. 16, 2020
• Servicer Evaluation: Select Portfolio Servicing Inc., July 23, 2020
• Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019