Overview
- Headquartered in Westlake Village, Calif., PennyMac Loan Services LLC (PennyMac) is a residential mortgage loan servicer with approximately $508 billion in unpaid principal balance.
- We raised our overall rankings on PennyMac as a residential mortgage loan primary and special servicer to ABOVE AVERAGE. As part of the ranking action, we raised our management and organization subrankings to ABOVE AVERAGE and affirmed our loan administration subrankings.
- The management and organization subranking actions reflect PennyMac's strengthening and maturing risk management framework along with its technology enhancements to support its growing servicing portfolio.
- The ranking outlook on each ranking is stable.
DALLAS (S&P Global Ratings) July 13, 2022--S&P Global Ratings today raised its rankings on PennyMac Loan Services LLC (PennyMac) as a residential mortgage loan primary and special servicer to ABOVE AVERAGE from AVERAGE. The ranking outlook on each ranking is stable.
The ranking upgrades are attributable to a combination of PennyMac's risk management framework that has developed over time and seasoning of its proprietary servicing system that it launched in 2019. Its risk management framework encompasses sound governance practices, independent risk monitoring, and business controls and quality assurance testing. Key components include executive oversight committees, periodic risk assessments, comprehensive quality control and compliance testing that is independent of the operations, quality assurance testing within the operations, and the use of applications to support risk management programs such as a governance, risk, and compliance application. Combined, these broad components provide an infrastructure on par with other ABOVE AVERAGE servicers that we rank.
Additionally, PennyMac transitioned to an internally developed servicing system in October 2019. In our prior review, we noted the risk associated with transitioning to a new servicing system that warranted seasoning. Since that time, PennyMac has demonstrated the servicing system's effectiveness in supporting the primary and special servicing requirements.
Our rankings reflect PennyMac's:
- Seasoned and well-experienced senior management team;
- Sound risk management and internal control framework, including structured independent oversight, to monitor and detect risk;
- Training program with resources to support new-hire and existing employee training;
- Effective systems and technology that are well-integrated to promote process automation;
- Continued focus on process automation and proactive borrower communication practices to push information to borrowers;
- Servicing performance metrics that are generally competitive with similarly ranked primary servicer peers, except for call center metrics and staff turnover in call center areas, which were elevated; and
- Sophisticated default and special servicing capabilities to manage and resolve distressed loans.
Since our prior review (see "Servicer Evaluation: PennyMac Loan Services LLC," published Feb. 6, 2020), the following changes and/or developments have occurred:
- The chief risk officer retired and was replaced by the promotion of the former chief credit officer.
- An information technology compliance team was established under the enterprise risk management division.
- Optical character recognition technology was introduced to automate certain processes.
- PennyMac transitioned from a proprietary solution to an industry-recognized application to manage its quality control testing program.
- A verbal complaint response team was established to manage and resolve verbal complaints.
- An electronic disbursement option was implemented to reimburse borrowers for escrow and payoff overages.
- Offshore work was expanded with a vendor relationship in the Philippines to handle some of the basic customer service calls.
- Processing and posting procedures for the majority of payoffs was automated.
- PennyMac transitioned to a new claim management solution.
- A proprietary attorney portal application was launched to manage foreclosure and bankruptcy processes and attorney workflow.
The stable ranking outlooks reflect our base-case expectation that PennyMac will continue to perform as an effective primary and special servicer. PennyMac is supported by its experienced senior leadership team, effective technology, and sound control framework. The company continues to invest in personnel and drive technology development and enhancements to further its scalability, which supports its growing servicing portfolio in a controlled manner. We expect that the special servicing portfolio will continue to decrease in size as it is not a key growth strategy at this time. However, while the company focuses on automation, we also expect PennyMac to maintain strategies and capabilities to effectively service its special servicing portfolio.
The financial position is SUFFICIENT.
Related Research
- Bulletin: PennyMac Financial Services Inc. Senior Unsecured Recovery Prospects Hold Up Following Secured Debt Issuance, June 17, 2022
- Select Servicer List, April 19, 2022
- Servicer Category Descriptions Expanded and Revised, Feb. 28, 2022
- Research Update: PennyMac Financial Services Inc. 'BB-' Rating Affirmed; Outlook Remains Stable; Senior Notes Rated 'BB-' (Recovery: '4'), Sept. 13, 2021
- Servicer Evaluation Spotlight Report™: Environmental, Social, And Governance Factors Have Consistently Powered Our Servicer Evaluation Rankings, Nov. 16, 2020
- Servicer Evaluation: PennyMac Loan Services LLC, Feb. 6, 2020
- Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019
This report does not constitute a rating action.
| Servicer Analyst: | Jason Riche, Dallas + 1 (214) 468 3495; jason.riche@spglobal.com |
| Secondary Contact: | Leigh Stafford McLean, Dallas + 1 (214) 765 5867; leigh.stafford@spglobal.com |
| Analytical Manager, Servicer Evaluations: | Robert J Radziul, New York + 1 (212) 438 1051; robert.radziul@spglobal.com |
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