Rationale

S&P Global Ratings' rankings on Newmark are ABOVE AVERAGE as a commercial mortgage loan primary servicer, and AVERAGE as a commercial mortgage loan special servicer. On March 17, 2022, we affirmed the rankings (please see "Newmark ABOVE AVERAGE And AVERAGE Commercial Mortgage Loan Servicer Rankings Affirmed; Ranking Outlooks Stable," published March 17, 2022). The ranking outlook is stable for each ranking.

Our rankings reflect Newmark's :

• Experienced leadership in primary servicing, albeit with persistent staff turnover;
• Leading position among Fannie Mae and Freddie Mac lenders, which feeds Newmark's main servicing volume;
• Augmented servicing capabilities, made possible by outsourcing certain repetitive servicing functions to Midland Loan Services (MLS), a primary servicer ranked ABOVE AVERAGE by S&P Global Ratings;
• Comprehensive internal control regime;
• Limited diversity among property types (i.e., predominantly multifamily) across both primary and special servicing portfolios;
• Small, dedicated staff of special servicing personnel, which is augmented by experienced contractors from a Newmark affiliate; and
• Modest current special servicing volume with an uptick in real-estate owned (REO) asset management resolutions.

Since our prior review (see "Servicer Evaluation: Newmark Knight Frank," published June 26, 2020), the following changes and/or developments have occurred:

• Newmark Knight Frank rebranded to "Newmark" in October of 2020, and after completion of the state licensure process in early 2021, the name change was approved by GSE Lenders in the fall 2021.
• The primary servicing portfolio totaled $53.8 billion in unpaid principal balance (UPB) as of Dec. 31, 2021, primarily due to an increase of 24.8% government-sponsored entity (GSE) business lines from last report.
• In mid-2021, the vice chairman, head of loan servicing's responsibilities were expanded to include the closing, committing and delivery team.
• In January 2021, the company hired an experienced industry executive to join the company as the head of multifamily capital markets compliance, replacing the previous head of compliance, who departed the company in November 2020.
• In April 2021, the loss mitigation group was aligned under the senior managing director of enterprise risk and governance.
• In May 2021, the company hired an experienced chief information officer to support their technology platform.
• In late 2019, Newmark established an office in India to provide specific back-office servicing support (i.e., not client facing). This group, which started with 20 people which became full-time Newmark employees in 2020, totaled 306 as of Dec. 31, 2021, with 14 of those people supporting the servicing operations.
• In March 2021, Newmark upgraded to Enterprise!® version 20210.1.11.12.
• In 2020, Newmark migrated their systems to the OneDrive application as a replacement to having personal "home" computer drives.
• The IRMA system (a proprietary insurance system) was upgraded to streamline flood insurance reviews and create efficiencies for compliance tracking.
• During the outset of the pandemic, the special servicing group, which includes eight Newmark employees and six contractors, utilized two additional experienced employees from underwriting to handle the temporary spike in volume.
• Newmark's response procedures to the COVID-19 pandemic was to have its employees work from home. Management reported that some employees have chosen to return to the office, with plans to bring back the majority of employees in April 2022 in a hybrid workforce model, depending on pandemic conditions.

The ranking outlook is stable for each ranking. We expect Newmark will continue to effectively and efficiently service and monitor their loan portfolio, including a large concentration of GSE loans, with their experienced staff and continue to focus on automation of processes. We anticipate additional transition time for the India operation to be fully staffed and provide additional efficiencies and streamlining of servicing functions.

In addition to conducting a remote site visit with servicing management our review includes current and historical Servicer Evaluation Analytical Methodology data through Dec. 31, 2021, as well as other supporting documentation provided by the company.

Profile

Newmark Group Inc. (Newmark Group) is a publicly traded company that, through its subsidiaries (including Berkeley Point Capital LLC [BPC]), operates as a full-service commercial real estate services business with a complete suite of services and products for both owners and occupiers across the entire commercial real estate industry. The investor services and products of Newmark Group's subsidiaries include capital markets, agency leasing, property management, valuation and advisory, diligence, and underwriting. Newmark Group's subsidiaries also offer GSE lending, loan servicing (i.e., BPC), debt and structured finance, and loan sales.

While public shareholders own majority economic control of Newmark Group, Cantor Fitzgerald L.P. (Cantor) maintains voting control of Newmark and its subsidiaries via ownership of a separate class of stock with super-voting rights. Cantor is a private limited partnership whose regulated and unregulated subsidiaries conduct securities and commercial real estate brokerage, financing, and execution services for institutional clients in the U.S. and globally. Cantor provides and allocates costs to Newmark for back-office services provided by Cantor and affiliates, including occupancy of office space, utilization of fixed assets, accounting, operations, human resources and legal services and information technology.

As of Dec. 31, 2021, according to management, Newmark Group had 6,200 employees in 160 offices globally, including Newmark's 73 employees with servicing and asset management-related roles. Servicing operations, using the Newmark Multifamily Capital Markets name, are located mainly in Lower Gwynedd, Pa. and Newport Beach, Calif., and include various asset management and special asset management activities. The special servicing asset management positions are also located in Lower Gwynedd, Pa. and Bethesda, Md., where Newmark's Multifamily Capital Market primary offices are located.

As of Dec. 31, 2021, Newmark's full serviced portfolio totaled $53.8 billion, with 2,395 loans containing collateral across 46 states. The emphasis is multifamily, which comprised 87.1% of the unpaid principal balance (UPB) of the portfolio on Dec. 31, 2021. In addition to full servicing, Newmark also performs limited servicing for certain commercial mortgage-backed securities (CMBS) loans, which typically consist of collecting financial statements and completing property inspections.

Table 1

Table 2

Management And Organization

The management and organization subrankings are ABOVE AVERAGE for primary and special servicing.

Organizational structure, staff, and turnover

Newmark's servicing management team and staff members possess the professional experience and expertise to effectively service loans in the company's portfolio. Its management team and staff exhibit above average levels of industry experience compared to S&P ranked peers; however, employee tenure at all levels are meaningfully below its peer averages due, in part, to the previous office move from Bethesda/Boston to the current PA office location -that led to some employee departures in 2020. Additionally with the India office's recent additions to the team, the overall employee tenure was affected by the new hires.

Although the servicing organization stated they do not have a formal management succession plan, managers have a role in helping with succession planning from identifying backfill options, to hiring replacements and distributing work assignments. Senior leadership, in collaboration with HR, is responsible for assessing key dependencies and ensuring succession plans are in place for the continued ability to transact servicing business in the event of employee departures. Additionally, Newmark periodically assesses its compensation and benefits package to ensure they are competitive with peers to attract and retain talent.

For calendar year 2021, total employee turnover (for primary and special servicing operations) was approximately 24.0%. Management noted that, similar to what we have observed from other ranked servicers, some staff members left for opportunities with increased pay during the current tight labor market.

A vice chairman (VC) of Multifamily Capital Markets oversees servicing, asset management, and special servicing and reports directly to the president and head of Newmark Multifamily Capital Markets. The VC has six direct reports with associated duties as follows:

• Asset management: financials, inspections, reserves, letters of credit, payoffs and borrower consents.
• Servicing operations: portfolio management, construction loan administration, investor services, loan administration, insurance compliance, new loan boarding, and insurance claims.
• Servicing project management: project management, operational enhancements, systems, servicing reports, tax administration, escrow analysis, and management of the MLS contract servicer relationship.
• India site director: offshore operations providing back-office support, including imaging documents, reviewing property inspections, financial statement spreading and analysis, reviewing replacement reserve requests, monitoring completion repairs, boarding new loans, setting up covenant tasks, handling insurance reviews and loan surveillance/investor reports.
• Enterprise risk and governance, special servicing: oversight of firm-wide risks and controls, with primary responsibilities including special servicing, default loan management, and watchlist loans, risk committees, consents, compliance, and audit.
• Closing, committing, and delivery directs and coordinates loan closings to ensure all applicable investor requirements are met.

All Newmark Multifamily Capital Markets' corporate support functions report to their respective Newmark corporate function heads, with a dotted line to the chief strategy officer and president and head of multifamily capital markets. This includes support functions for human resources, technology, finance, accounting, and legal. Cantor is responsible for the internal audit function (discussed in a later section), and Newmark's risk and governance (R&G) group coordinates activities with Cantor.

The company's business model dictates that routine tasks (e.g., billings, payment processing, spreading property financials, Uniform Commercial Code (UCC) continuations and terminations, etc.) are outsourced to MLS. Newmark's management believes this arrangement results in enhanced customer service by allowing its staff to focus on critical value-added areas of the business.

Kramwen, Newmark's subsidiary in Hyderabad India, is also responsible for handling various repetitive tasks. These responsibilities include insurance compliance and expiration reviews, boarding new loans, loan covenants, financial analysis and comments, reviewing borrower reserve packages and monitoring and tracking inspection reports. Kramwen is headed by a managing director in India who reports to the vice chairman of Newmark in the US.

In April 2021, Newmark backfilled the head of special servicing position when the senior managing director (SMD) of enterprise R&G assumed oversight for the special servicing group that handles the GSE portfolio. The SMD, an experienced and tenured internal employee, and his team have managed CMBS special servicing loans for the last four years, so management believed it was a natural fit to include the GSE loans within this group. The current special servicing/loss mitigation team (excluding those who handle borrower consents) includes four Newmark employees. The group is supported by five Spring 11 contract employees who functionally serve as asset managers, and one individual contract employee. Spring 11 is a Newmark Group-controlled subsidiary, and all five of these industry experienced contractors have been the same contractors for 24 months. Management feels using the contractors provides Newmark with more flexibility as markets change without laying off staff. We note that Newmark has not had many defaulted loans in recent years.

Table 3

Training

Newmark provides its management and staff with a diversified array of ongoing, formal internal and external training programs, which is typical of similarly sized peers. Each employee is required to participate in at least 40 hours of training and educational events each year. During 2021, the staff (primary and special servicing employees) averaged 47 and 56 hours, respectively, per employee. Additional training features include the following:

• Annual training plans are jointly developed between manager and employee.
• Training is delivered through a variety of programs, including staff meetings, formal classroom training, and seminars (web-based and conferences). Key areas of training have recently included: Anti-Financial Crimes, RegAB requirements, SOFR transition, Enterprise Enhancements, Modifications & Forbearance Agreements, Default Servicing, Flood Analysis, and Life Company Servicing.
• Training activity is tracked on Excel spreadsheets. We note that most similarly sized ranked servicers track training through a learning management system.
• Managers, accompanied by experts in servicing and asset management functional areas, deliver process training.
• Process maps and desktop procedures are utilized for new-hire training.
• New India employees, while still undergoing training, are monitoring using quality control metrics. Each associate starts with all their work being quality reviewed and as the accuracy approaches 100%, the reviewed sample size is reduced. Scores are built into the goal setting process and is a component of their advancement potential.
• Newmark has implemented anti-financial crime training across all multifamily capital market teams. During 2021, the company contracted with LexisNexis to help conform with anti-terrorism and money laundering laws such as: the Patriot Act, Financial Crimes Enforcement Network, and Office of Foreign Assets Control (OFAC) Regulations.
• Management and staff participate in an array of the Mortgage Bankers Assn.'s commercial committees as well as participating on various GSE and MBA committees.

Systems and technology

Newmark has effective technology to meet its primary servicing requirements. The company continues to focus on technology enhancement projects, internally and with Enterprise!, to further streamline and automate servicing tasks across various loan administration functions.

Servicing system applications  

Newmark operates in a suitably automated environment. The primary servicing system is integrated with additional applications for document tracking, risk management, and standard office automation tools. Other notable features include the following:

• In 2020, Newmark updated Enterprise! to version 20210.1.11.12 from version 2015.3.MR8. This update added additional automation tools and corrected some system bugs. Specialized programs interface with the system to accommodate Fannie Mae DUS and other GSE investor reporting requirements.
• Newmark regularly communicates with MLS on technology upgrades to Enterprise! Current areas in focus include the automated system testing process, credit facility processing, escrow analysis, imaging enhancements, enhancing the insurance module and new automation that includes artificial intelligence tools.
• Newmark employs a proprietary data warehouse system to allow users to create, edit, and schedule various queries and reports from Enterprise! data, including ad hoc query and reporting capabilities for servicing and asset management personnel.
• The Viewpoint reporting tool generates servicing metrics that can provide over 340 reports for use by asset management and servicing as needed.
• Citrix ShareFile is an application used to store property inspections, financials, insurance pre-funding review documents, servicing transfer documents, and special asset management documents.
• Closer software, a third-party application, is utilized in Newmark's front-end originating, underwriting, and closing departments.
• Insurance Risk Management Application (IRMA) is an internally developed application for insurance tracking and compliance as well as communication with borrowers and agents. The application utilizes a nightly feed from Enterprise!.
• The IRMA system has strengthened controls around data integrity in Enterprise! by implementing a form showing changes for critical servicing data points. Management can now run insurance reports on demand through IRMA for specific time periods and for compliance reporting.
• Newmark automated the watchlist engine to improve monitoring of distressed assets and detect early warning signs for potential defaults.
• In mid-2021, BatchGeo was implemented, via the Enterpise! system with nightly uploads, for mapping properties associated with disaster monitoring and for watchlist loans.
• Newmark does not have a dedicated system for special servicing, unlike higher ranked special servicers. Special servicing utilizes Microsoft Office products for credit cases, asset summary reports, resolution models, and net present value models.

Business continuity and disaster recovery  

Newmark maintains written data backup, business resumption, and disaster recovery plans for its servicing operations. Newmark's business continuity plan functions under Cantor's corporate compliance umbrella. Features of these plans include the following:

• All firewalls are kept up to date with the most current security patches to help fight against malware and virus threats. Antivirus is active on all company computers.
• Disaster recovery and business resumption plans are reviewed and revised annually, with the last tests completed in May 2021. Management indicated no material issues were found.
• The most recent annual disaster recovery test with the MLS vendor for the Enterprise! system was also conducted in May 2021, with no significant issues per management.
• Annually, a copy of the annual SOC1 reports of MLS and the MLS data center providers are reviewed by Cantor.
• Newmark has their primary system backup locations at reciprocal MLS sites in Richmond, Va., with secondary backup sites in Ashburn, Va. Both of which are located more than 25 miles from Newmark's offices. The balance of servicing data is replicated at various regional locations.
• Per management, key servicing operations can resume within one hour of an emergency, cash recovery is within 6 hours, and its full recovery time objectives for all systems is 24 hours.
• Newmark's disaster recovery plan is based on remote access capability and alternate work locations for their employees in the event of an emergency. The company has remote desktop capability available for all staff, with multifactor authentication required for remote logon.
• Beginning in March 2020, Newmark had 100% of their employees work from home due to the COVID-19 pandemic with management reporting no significant issues. During 2021, a limited number of employees volunteered to work in the office. Management believes that, based upon current conditions it expects that most employees will resume working in the office in April 2022, albeit in a hybrid manner (i.e., less than five days a week).

Cybersecurity  

Newmark maintains certain routine cybersecurity preparedness protocols, albeit to a lesser extent than most servicers we rank. Features include the following:

• An outside vendor conducts annual penetration testing, making reports available to executive management with detailed information on attempted cyberattacks. Management stated there were no significant issues noted from the December 2021 test.
• Employees are trained annually on anti-phishing compliance but are not sent phishing emails on a regular basis to test their awareness. We view this as a detriment to Newmark's cybersecurity preparedness plan and note that most commercial servicers we rank send phishing emails to their employees on a routine basis.
• Network level passwords are changed every 60 days or 120 days depending on authority levels.
• Users are allocated least privileged security profiles based on an approved role within Enterprise! and Enterprise! passwords are changed every 30 days.
• Newmark reported that they have a corporate attorney on staff to help with cybersecurity needs and have a stand-alone insurance policy for cybersecurity issues.

Internal controls

Newmark's risk management efforts - including its policies and procedures, and system of controls and governance - reflect a sound approach to maintaining a controlled servicing environment.

Policies and procedures  

Newmark maintains documented policies and procedures (PnP) for its asset management and servicing operations in an electronic format; it is available to all employees through the company intranet.

• Each business area determines the business owner and author of each PnP. Enterprise R&G confirms all PnP's are reviewed at least annually by the appropriate author and owner as part of their compliance review program.
• Since our last review, the PnP's have been updated, based on internal review dates and include updates that reflect the new branding of the company.
• Depending on the significance of changes, PnP's may also be communicated in a staff meeting or training session.
• Newmark uses SharePoint for its PnP and supporting exhibits library.

Compliance and quality control  

Cantor internal audit conducts an annual servicing audit, although it relies on a third-party vendor to perform the administrative aspects. The group works with Newmark's enterprise R&G team, while under the Cantor internal audit umbrella and control. Noteworthy aspects of compliance and quality control include:

• The vendor performs internal compliance testing on key servicing functions, including reviews of PnPs, staff interviews, and sample testing to identify operational risk and provide feedback on all major servicing responsibilities, focusing on functions not already covered by Regulation AB (Reg AB) and the Uniform Single Attestation Program for Mortgage Bankers (USAP) audits.
• The internal quality control/self-audit program monitors compliance on a weekly, monthly, and quarterly basis, depending on the activity.
• Servicing and asset management teams utilize a combination of management reports, management oversight, and monthly metrics to ensure that loans are serviced according to the contractual requirements of investors, the loan documents, and regulatory requirements/laws. The vendor reviews the current practices against the PnPs and regulatory requirements for compliance.
• The servicing metrics consist of more than 340 reports generated from the ViewPoint data warehouse, as well as canned reports from the servicing system.
• Newmark's enterprise R&G department conducts MLS quality control tests, the results of which are provided to management to ensure policies, procedures, and prudent servicing practices are being followed. These on-site tests are completed on a 24-month cycle, with the last test, which was performed in May 2021, receiving a satisfactory rating.

Internal and external audits  

Newmark has a well-controlled servicing environment. All audits are managed through Newmark's enterprise R&G team. Our view stems from the following:

• Newmark is included in Cantor's internal audit program who use the Newmark company risk-based approach to determine areas to be reviewed. In 2021, Cantor performed the internal audit covering bank accounts, escrow analysis, new loan boarding, waterfall administration, trigger/covenants, loss draft process and special servicing. Management indicated there were no material findings in this report.
• The internal and compliance audits include reports for tracking open items.
• A third-party audit firm issued Reg AB and USAP compliance certifications in March 2021, for the calendar year ending 2020. Both reports have no cited exceptions. The Reg AB report covering 2021 was recently received and again cited no exceptions. The USAP for year-end 2021, is not expected to be received until early April 2022.
• Three master servicers perform annual reviews of Newmark's primary servicing operations. Per management, there were no material findings addressed in the two most recent written assessments received during 2021, and they have received a verbal clean report for 2021 from the third master servicer.
• Fannie Mae performs a biannual assessment of Newmark, the last which happened in December 2020. Per management, no material findings were identified in this review.
• Freddie Mac also performs an annual assessment of Newmark. The last which was completed in November 2021. Management stated they received the highest rating of "satisfactory" with no material issues noted.

Vendor management

Newmark has well-controlled and sound procedures governing vendor oversight. The company engages third-party vendors to provide services for financial statement processing, pre-funding insurance reviews, property inspections, flood zone determinations, and property tax services. The vendor process includes the following:

• The Newmark risk and governance team handles the company's vendor vetting process, contract reviews, and pricing.
• Vendor performance and contract compliance are monitored through quality controls, random sampling, vendor scorecards, and vendor site visits. Feedback regarding vendors is obtained from asset managers for contractors they use.
• Current vendors each have specific service-level agreements with Newmark.

Insurance and legal proceedings

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

Loan Administration--Primary Servicing

The loan administration subranking for primary servicing is ABOVE AVERAGE.

Newmark provides financing with Federal Housing Administration (FHA) mortgage insurance, and it functions as a Multifamily Accelerated Processing-approved lender. The company is a designated approved lender under Fannie Mae's Delegated Underwriting and Servicing (DUS) program. For 2021, Newmark was a top five DUS producer by volume according to industry press releases and management, closing $4.4 billion in Fannie Mae loans. As of Dec. 31, 2021, its Fannie Mae loan servicing portfolio exceeded $25.4 billion, approximately 47.2% of its total full primary servicing portfolio.

Newmark is also an approved Freddie Mac Optigo conventional and affordable housing seller/servicer. For 2021, Newmark was the #6 Freddie Mac producer according to industry press releases and management by volume closing on $4.6 billion in Freddie Mac loans. As of Dec. 31, 2021, its Freddie Mac servicing portfolio was $22.6 billion (42% of full primary servicing UPB), including securitized loans in Freddie Mac K-deals totaling $19.7 billion.

Newmark's primary servicing (full-serviced) UPB has increased 23.8% since our last review. The company has reported little to no delinquencies for the last several years and these levels have also remained low during the COVID-19 pandemic, with the portfolio only experiencing a small increase during 2020. As of Dec. 31, 2021, Newmark reported a 0.1% total delinquency rate, which is largely similar with their multifamily-centric peers (see table 4).

In 2020, Newmark organized a loss mitigation group focused on the Fannie Mae credit risk portfolio using experienced employees. When needed, this group assisted the primary servicing team with agency forbearance requests. For Fannie Mae and HUD forbearances, the approval authority rests with the primary servicer in conjunction with agency regulations. For any forbearance requests related to Freddie Mac K-deals and Freddie Mac portfolio loans, Newmark performs an initial review of documentation, makes their recommendation, and refers the request to Freddie Mac or the master servicer for a final forbearance approval or denial.

While substantial in size, the overall full servicing portfolio lacks meaningful diversity among property types. The emphasis is multifamily, which represents 87.0% of property count and 87.5% of UPB (see table 5). At the same time, the portfolio contains a varied geographic mix with properties in 46 states; the top three states by geographic distribution are Texas (15.4% by UPB), California (15.0% by UPB), and Florida (9.0% by UPB). The portfolio's top investor types are the GSEs as Fannie Mae comprises 47.2% of UPB and Freddie Mac loans aggregate 42.1% of UPB (see table 6).

Table 4

Table 5

Table 6

New-loan boarding

Based upon its stated practices and written procedures, Newmark has an effective loan setup function. Controls and other features of new loan setup include the following:

• A new loan boarding team member manually enters the new loan data from the closing documents into Enterprise! The team targets six business days to board essential loan data for all new loans.
• Newmark uses an automated data feed across all data elements for limited subservicing of their CMBS loans. In instances where Newmark is the primary servicer for CCRE-originated loans, data is entered manually.
• The group boarded 346 new loans during 2021. Borrowers receive a detailed welcome package containing a servicing procedures guide within 15 days of loan closing.
• The operations team receives detailed insurance, tax, letter of credit, and UCC filing information. The team then forwards the information to topic specialists who input this data manually into the servicing system.
• The servicing system's data points are compared with original input documents and other key data points as part of the quality control review process that is completed by a different loan boarding team member than the one who entered the data.

Payment processing

Newmark outsources daily cash processing activity to MLS, which is a division of PNC Bank N.A; PNC Bank acts as the custodial bank. The transaction-processing unit at MLS oversees loan payment processing and posts all receipts, as directed by Newmark. Further payment processing details include the following:

• As of Dec. 31, 2021, loan payments were received and posted electronically through Automated Clearing House (ACH) drafts (81% of total), wire transfers (15%), and lockbox (4%), with no checks being collected at the servicer's office.
• Duties for the receipt and deposit of funds, batch processing, and payment posting are appropriately segregated.
• Bank account reconciliations, which undergo multiple levels of approval, including from the VP of investor services, are completed as part of the outsourcing relationship.
• At regular intervals, the company performs audits for adjustable-rate loans.
• All phases of these processes require supervisory sign-off, and all newly originated CCRE loans include an ACH payment requirement.

Investor reporting

Newmark has significant experience with Fannie Mae, Freddie Mac, CMBS, and life insurance company loan reporting requirements. The company has dedicated staff for the various investor reporting duties, and operational accounting activities are properly segregated for reporting, remitting, and the related account reconciliation processes. Investor reporting attributes include the following:

• The team performs all elements of investor reporting and remitting electronically.
• Investor remittance, reporting, and account reconciliation tasks are segregated among staff, and all phases require supervisory sign-off.
• Enterprise! produces the Commercial Real Estate Finance Council investor reports.
• Automated bank account reconciliation and cash management systems with full access to online bank activity enable the company to timely remit funds and effectively monitor a high number of daily banking transactions and related reconciliation tasks.
• As of Dec. 31, 2021, Newmark did not have any unidentified items in their suspense account over 60 days.
• During 2021, Newmark reported that it did not incur any penalties for late reporting or late remitting.

Escrow administration

The company has sound controls for escrow administration activities. Highlights include the following:

• Newmark sets up all tax data in Enterprise! and provides a copy of the legal description to MLS for newly funded loans. Through their vendor, it obtains verification of taxes paid for non-escrowed loans from taxing authorities and sends this to MLS, who electronically updates the system.
• Newmark outsources most of its tax escrow processing to MLS to benefit from their contract with CoreLogic, who automates tax payment processing to taxing authorities and provides non-escrow tax reporting.
• MLS uploads tax files received from CoreLogic to Newmark's system and applies an approval code for CoreLogic to pay taxes. MLS posts disbursements from the escrow account on loans where taxes are paid within 10 days of taxes being due. MLS then sends the funds to CoreLogic.
• Associated tax policies and procedures are complemented by a range of quality control reports that are automatically delivered via email to key personnel and can be run in the system as needed.
• Based on loan count (excluding limited subservicing), approximately 75% of the loans had tax escrows as of Dec. 31, 2021, with no late payments reported in 2021.
• Based on loan count (excluding limited subservicing), approximately 59% of loans had insurance escrow accounts as of Dec. 31, 2021.
• Newmark's staff performs insurance compliance management using its proprietary IRMA application, complemented by a range of insurance quality control reports generated by IRMA as needed.
• Newmark has a newly automated insurance renewal process to streamline and shorten renewal review times.
• Insurance provider ratings are reviewed semiannually, with any downgrade notifications reviewed and addressed by the team.
• All insurance due dates are tracked through Enterprise! which issues system-generated renewal notices for borrowers. The company has a policy of issuing notices to borrowers 30 days before the policy renewal date, along with subsequent notices as needed.
• A consultant handles insurance policy coverage and compliance reviews for new loans. Newmark's internal staff reviews insurance policies upon loan renewals to ensure compliance with investor and loan documents.
• As of Dec. 31, 2021, the company had no loans on its force-placed policy. The policy provides for a lengthy 365 days of retroactive coverage.

Asset and portfolio administration

Newmark has sound procedures covering asset and portfolio administration tasks, with dedicated staff supporting the functions both in the US and India. Additionally, the company engages MLS to perform repetitive servicing functions such as property financial statement collection, data input, and image scanning. Newmark retains all quality control reviews, credit decisions, and analytical accountability. Highlights include the following:

• For its total portfolio as well as for its CMBS portfolio, Newmark collected and reviewed 98% of the 2020 annual statements portfolio-wide by Dec. 31, 2021. Financial statements are analyzed, commented on, and uploaded to investors per requirements.
• Enterprise! houses Newmark's operating statement data and can provide detailed reports for management to review and identify trends.
• Newmark has a relationship with a third-party vendor who performs collateral site inspections and tracks timely receipt of completed reports. Nearly 1,100 properties were due for inspection during the second half of 2021, and all were completed in a timely manner.
• Unlike many other ranked servicers, Newmark does not perform quality control checks on their third-party vendor inspections. Management stated they have used their vendors for several years and are comfortable with the quality of their work.
• Portfolio managers can track loan level covenants for their assets via the system dashboard.
• Newmark servicing specialists set up UCC information in Enterprise!, imaging the UCC acknowledgement to the loan document tracking system. MLS monitors the portfolio weekly, identifying UCC continuations over the next six-month period and prepare the necessary filing packages using a vendor.
• MLS, through their vendor, forwards continuation packages to a third party for filing, and then updates Enterprise! with the date sent for filing.
• Enterprise! automatically generates monthly bills for adjustable-rate mortgage (ARM) loans (16.8% of the portfolio) that have an interest rate based upon an index plus a set spread. MLS manually maintains the index table in Enterprise!, with its staff conducting regular ARM index audits.
• Newmark utilizes an automated risk-rating engine that flags loans for the watchlist based on various performance triggers, ultimately relying on its senior staff members' judgement to confirm the final risk rating.
• Newmark's automated watchlist is directly built into the data warehouse, which produces one report using the Viewpoint application. The rating criteria is built into the report and processed automatically.
• Asset management reviews loans whose property inspections contain deficiencies or substandard property financials to determine if they should be added to the watchlist.
• The asset manager may identify additional collateral performance issues based on qualitative factors not captured by the risk-rating engine that causes an asset to be added to the watchlist.

Borrower requests

Newmark's borrower requests are addressed in a proactive manner. Highlights include the following:

• The company has a separate dedicated team to work on borrower consent requests with a designated person assigned as a liaison for each borrower relationship.
• Newmark sends periodic borrower satisfaction surveys to their borrowers, which management reported as being generally positive.
• An asset manager prepares and analyzes the written proposals that address borrower requests, including a review of property financials and an inspection, with approvals granted by senior asset management staff.
• Thorough internal reporting mechanisms are in place to track resolution times and control the aging of borrower requests.
• Newmark processed a total of 82 borrower requests during 2021, including 19 management changes, 17 defeasances, four leasing consents, and 42 other borrower requests.

Early-stage collections

Newmark's delinquencies have increased slightly during the pandemic but have remained minimal (0.1% as of Dec. 31, 2021). Highlights include the following:

• Calls are made immediately after the grace period expiration on delinquent loans, with Enterprise! automatically generating written notifications within two days of the grace period expiration.
• At the 30th day of delinquency, portfolio managers send an additional letter advising the borrower that default interest has begun to accrue.
• Additionally, a delinquency report is distributed internally to all senior managers and some investors, depending on servicing requirements, so they have an opportunity to provide additional guidance.
• Typically, by the 45th day of delinquency, the loan is either prepared for transfer to special servicing or is directly handled by the investor, depending on whether the loan is part of a securitization or a private pool.

Loan Administration--Special Servicing

The loan administration subranking for special servicing is AVERAGE.

Newmark has built a modest track record of managing and disposing troubled assets nationwide, many of which are collateralized by multifamily assets. Special servicing is handled mainly in the company's Lower Gwynedd office. As of Dec. 31, 2021, Newmark was the named special servicer for nine Freddie Mac K-deals with a combined UPB of $2.0 billion (including 446 loans). The overall active volume of specially serviced loans remains modest, with Newmark servicing nine such loans (a combined total of $21 million in UPB) as of the same date (see table 7). Additional special servicing responsibilities include handling delinquent loans and surveilling watchlist loans.

At the outset of the pandemic, Newmark re-allocated and cross trained resources from their underwriting group to assist with managing forbearance requests and default activity. Their India operation was able to pick up additional administrative work (not client facing) to allow others in the US time to handle borrower calls. Management stated that, although they are notified of forbearance requests, they are frequently not involved in the approval process because the master servicer generally holds that authority.

Although the company had many inquiries seeking loan forbearance, in the end, a limited number of these came to fruition. Cross trained employees were able to remain in their original position and help with the review of forbearance requests along with their current day-to-day duties.

Since April 2021, the special servicing group has been managed by the senior managing director (SMD), risk and governance and special servicing, an executive with 27 years' experience with the company. Three Newmark employees report to the SMD who handle special servicing and loss mitigation duties, and five contractors from another Newmark Group subsidiary. This special servicing group had 100% employee turnover in 2020 when the prior head of the group left. With the group now operating under an experienced senior leader, and with a limited number of currently defaulted loans – management feels a structure using contractors provides the company with fungible resources to meet other needs, including modeling, consent underwriting, and report compilation. The vendor contractors make recommendations after their analysis but make no credit decisions on collateral.

Newmark's special servicing group is focused on multifamily properties, particularly with GSE loans. During 2021, Newmark resolved two relatively small multifamily loans, a foreclosure, and a full payoff (see table 8). Other than the aforementioned foreclosure (the first since 2014), full payoffs and returns to master servicing have been the only resolution strategies used since 2017.

Table 7

Table 8

Loan recovery and foreclosure management

Newmark displays adequate loan recovery and foreclosure management protocols to efficiently resolve non-performing loans, with a primary expertise and track record in the multifamily property type. Newmark has established the following procedures:

• Borrowers are required to sign a pre-negotiation letter before workout discussions can commence.
• Asset-level business plans are required within 30 days of loan transfer. The plans provide all necessary details and a proposed resolution strategy.
• Asset managers complete their business plans using a standardized template utilizing Microsoft Office applications.
• Asset managers regularly update business plans and asset status reports for review by senior management.
• Asset managers make foreclosure recommendations based on an internal delegated authority matrix, which the SMD reviews before submitting to the appropriate delegated authority for final approval.
• Given there are limited Newmark special servicing employees, the SMD maintains final sign-off on all transactions as applicable.

REO management and dispositions

Newmark has established procedures governing its REO oversight function; however, the REO disposition in 2021 is the first REO asset managed and disposed since 2014. Newmark follows the below procedures:

• Property managers and brokers are engaged using approved vendor lists. Standard contracts are used for vendors.
• Asset managers monitor property managers' adherence to a procedure manual for reporting and compliance.
• Asset managers prepare an REO business plan and budget within 30 days of acquiring title. The approval process for the plan and budget is similar to that used for loan business plans, with the SMD approving all transactions.
• Business plans are tracked through Enterprise! software.
• All sale bids must be submitted to the appropriate delegated authority for final approval. Given its primarily GSE-related portfolio, the GSE investor has historically coordinated the closing process.

Table 9

REO accounting and reporting

Newmark's documented controls and procedures for property-level accounting and oversight are adequate. Highlights include the following:

• Asset managers and servicing staff monitor monthly property management operating account activity.
• Procedures call for control of property management income and expenses through a single trust account that is segregated for each loan and is reconciled monthly.
• Newmark does not have a formal program to conduct on-site accounting or operating audits of their property management companies; however, best practice dictates that these be completed in the event Newmark accumulates an REO portfolio in the future.

Subcontracting management

Newmark's enterprise R&G team handles the management and oversight of subcontractors in an effective manner and follows the following guidelines:

• The legal department maintains, through excel spreadsheets, approved lists of property managers, brokers, attorneys, appraisers, and engineers.
• Business references are checked on all vendors before inclusion on the approved vendor list. It also rates and tracks vendor performance.
• In general, Newmark engages third-party vendors from approved vendor lists based on property type and location, along with the vendor's experience and past performance.
• The vendor list approval process is handled by Newmark's enterprise R&G team. The special servicing group engages the necessary vendors on an asset-level basis.
• Asset managers monitor third-party compliance according to performance and timeline guidelines. The asset managers use the in-house Newmark support staff of appraisal, legal, and engineering teams to perform a second-level review and to approve vendor work.
• The Enterprise! task management system tracks all contracting bids and work products for appraisals, environmental work, and engineering studies.
• The SMD of Newmark's enterprise R&G team provides oversight of Spring 11 contractors supporting special servicing for asset management, modeling, consent underwriting, and reports.

Performing loan surveillance

Levels of surveillance vary among loan/property type, asset performance, and directing certificate holder requests. Newmark reviews loan information provided by all sources including third-party sources. Other responsibilities include:

• On a monthly basis, the IRP package is downloaded from Freddie Mac's investor portal and reviewed per securitization.
• The delinquent loan status report and watchlist reports are reviewed to identify any loans added where Newmark serves as the special servicer.
• For any loans where a watchlist criteria has been triggered, the issues are addressed with Freddie Mac or the DCH.
• Borrower consent requests are reviewed to monitor potentially troubled loans.
• Loans are reviewed for financial and relevant covenant compliance requirements.

Legal department

All oversight of external legal engagements and ongoing service levels are handled by Newmark's internal corporate counsel. Other aspects include the following:

• The special servicing department generally uses approved external counsel for all loan-level needs.
• Newmark leverages the Newmark Groups' general counsel as the need arises.
• Asset managers review and approve legal bills before payment.

Financial Position

The financial position is SUFFICIENT.

Related Research

• Newmark ABOVE AVERAGE And AVERAGE Commercial Mortgage Loan Servicer Rankings Affirmed; Ranking Outlooks Stable, March 17,2022
• Select Servicer List, Feb. 4, 2022
• Newmark Group Inc., Dec. 15, 2021
• Servicer Evaluation Spotlight Report: Environmental, Social, And Governance Factors Have Consistently Powered Our Servicer Evaluation Rankings , Nov. 16, 2020
• Servicer Evaluation: Newmark Knight Frank, June 26, 2020
• Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019