Rationale

S&P Global Ratings' ranking on Freedom Mortgage Corp. (FMC) is AVERAGE as a residential mortgage loan primary servicer. On Aug. 16, 2022, we affirmed the overall ranking and the AVERAGE loan administration subranking while raising the management and organization subranking to ABOVE AVERAGE from AVERAGE (please see Freedom Mortgage Corp. AVERAGE Residential Primary Servicer Ranking Affirmed; Ranking Outlook Stable published Aug. 16, 2022). The ranking outlook is stable.

Our ranking reflects FMC's:

• Sound governance and risk management framework;
• Investment in technology and staff to support information security and operational risk management;
• Consistent portfolio growth;
• Continued focus on process automation and implementing technology to enhance the borrower experience, improve efficiency, and mitigate risk;
• Lack of material internal and external audit issues, as per the reports provided
• Servicing controls group that performs front-line process testing and monitors exception reporting;
• Effective business continuity practices, including housing operational functions in multiple locations; and
• Generally competitive servicing performance metrics when compared against its peer group.

We raised the subranking for management and organization to ABOVE AVERAGE from AVERAGE. The subranking upgrade is due to management's success in improving the organization through its investment in technology and staff for risk management, information security, servicing operations, and servicing controls. FMC implemented technology such as SalesForce, speech analytics, and vendor security monitoring software, among other enhancements, to help it mitigate risk, increase controls, improve the borrower experience, and improve efficiency. Some examples of enhancements in staffing include the development of a career ladder for the call center, increasing its cybersecurity staff by over 50%, and creating a vendor security team. In aggregate, the investments made by FMC provide a similar infrastructure to like-sized ABOVE AVERAGE ranked servicers.

Since our prior review (see "Servicer Evaluation: Freedom Mortgage Corp.," published Feb. 17, 2021), several changes and/or developments have occurred. FMC:

• Reorganized servicing, which included changes in servicing senior management;
• Transitioned to a new claim processing system;
• Increased the staffing and tools utilized for identifying and managing information security risks, including the creation of a vendor security team and the implementation of a vendor cybersecurity assessment platform and vendor continuous monitoring software;
• Launched an employee recognition program;
• Set up a dedicated business process and internal controls team within the servicing organization;
• Enhanced the management action plan oversight by internal audit;
• Implemented speech analytics in the analysis of borrower complaints as well as in the call center to identify training opportunities;
• Launched the initial phase of SalesForce as the call center user interface;
• Deployed a mobile application, which mirrors the functionality found on FMC's website;
• Continued the development and implementation of robotic processing applications, including payoff posting and loan buyouts;
• Instituted a career ladder program for servicing;
• Launched chat as a borrower contact point;
• Rolled out a borrower portal for loan workouts;
• Enhanced the foreclosure referral process by streamlining the data aggregation for the referral and creating a dashboard for management oversight of loan status;
• Launched a property risk model that is used as part of its best execution analysis; and
• Implemented software to manage the order and results of property inspections.

The ranking outlook is stable. FMC continues to evidence solid controls and processes throughout the servicing organization, which will allow it to remain a competent servicer of residential loans as it continues to grow its portfolio.

In addition to conducting a meeting with servicing management, our review includes current and historical Servicer Evaluation Analytical Methodology (SEAM) data through December 31, 2021, as well as other supporting documentation provided by the company.

Profile

FMC, a privately owned company formed in 1990, is headquartered in Mt. Laurel, N.J. It originates loans in all 50 states, the U.S. Virgin Islands, and Puerto Rico through four channels: correspondent, wholesale, retail, and call center. In June 2021, FMC transitioned its retail channel to RoundPoint, which it acquired in 2020. On Aug. 8, 2022, FMC announced that it had entered into a definitive stock purchase agreement to sell RoundPoint. The transaction is expected to close in 2023. FMC states that a small portfolio of loans subserviced by RoundPoint for FMC will be transferred back before the sales' finalization. Under the terms of the stock purchase agreement, FMC is required to divest the retail business from RoundPoint prior to closing. Freedom has begun the process of reducing the number of RoundPoint's retail branches, which has decreased from 90 branches at the end of the first quarter of 2022 to 60 branches at the end of the second quarter, 2022; this process will continue, with the ultimate result being that no retail branches will remain at RoundPoint. The company plans to handle retail originations through its call center after the Roundpoint sale. The bulk of the originated loans are sold to the Government National Mortgage Assn. (Ginnie Mae) with most of the remainder sold to Federal National Mortgage Assn. (Fannie Mae) and Federal Home Loan Mortgage Corp. (Freddie Mac) with the mortgage servicing rights (MSRs) retained by FMC. In 2014, FMC began servicing new loan originations and, as of 2016, services its entire portfolio.

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

With the exception of 2019, FMC has reported year over year growth in its portfolio over the last five years (see table 1). FMC's portfolio is diversified with no concentration in a single state that would cause undue risk (see table 2).

Table 1

Table 2

FMC says it plans to continue growing its servicing portfolio through organic originations and strategic acquisitions.

Management And Organization

The management and organization subranking is ABOVE AVERAGE for primary servicing.

Organizational structure, staff, and turnover

The president of residential servicing and correspondent lending reports directly to FMC's CEO. Since our prior review, the groups reporting to the servicing and correspondent presidents have been reorganized. There are now nine executives reporting to the president of servicing and correspondent lending, five of which are in servicing areas, three are shared services, with correspondent sales being the remaining group. The five servicing areas included operational excellence, customer engagement, operations, default, servicing controller. Shared services include oversight and finance, ancillary products, and correspondent and servicing strategy.

Within the servicing reorganization, there were also senior management changes. The EVP of core servicing and the SVP of customer advocacy left the company and those positions were not replaced. SVPs were hired to manage the newly reorganized customer engagement, operations, and servicing oversight and finance groups. Between December 2020 and June 2022, FMC increased its staff in headcount by approximately 61%.

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

• Senior management averages 16 years of industry experience, with six years average tenure at FMC;
• Middle management averages 10 years of industry experience, slightly lower than we see from peers, with an average of five years tenure;
• Turnover rate for management for the first half of 2022 was 15.4% which we consider slightly elevated. The staff turnover rate as of the same period was 13.0% which we consider good.

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

Since our previous review, FMC has added two staff members dedicated to employee engagement. They have also rolled out an enterprise employee recognition system that is peer to peer based.

Training

FMC has corporate-wide development and training programs for new hires and existing staff, which cover culture and soft-skills in addition to systems, product, and process training. There are three instructional designers, 16 trainers for servicing and correspondent lending, and five support staff. Highlights of the program include the following:

• Ten hours of annual compliance training is required of all staff and is delivered and tracked through the learning management system.
• In addition, staff have three to five hours of required job-specific compliance training annually.
• Any training developed to address regulatory or agency requirements is approved by the legal department.
• Since converting to a predominately remote work environment, all mandatory new hire, required position training, and regulatory and compliance training courses have been modified to be delivered virtually.
• Newly hired call center agents receive 98 hours of classroom instruction and an additional 58 hours of on-the-job (OTJ) training.
• Newly hired SPOCs and collectors receive 154 hours of classroom instruction and an additional 90 hours of OTJ training.
• New hire training is customized based on experience. Specialized programs are geared toward recent college graduates, as well as seasoned professionals who are new to mortgage servicing.

In 2021, FMC launched the "Elevate" program. In the customer care department, the program is made up of skill based training modules aligned to four job levels. To move to the next level, staff members must take the courses and pass both technical and voice proficiency tests which demonstrate their knowledge. Each level provides staff members with an opportunity to increase their pay. In addition to Elevate, staff development within the call center incudes classes assigned on specific topics (for example, escrow), small group clinics to address specific development areas, and monthly coaching sessions from management.

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

Systems and technology

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

Servicing system applications 

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

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

In 2022, FMC deployed its first phase of SalesForce in loan servicing with the system eventually becoming the call center user interface. The initial phase includes connections for chat, borrower payoff requests, and sending borrower documents. FMC expects quarterly releases through 2022.

After launching its new customer facing website in June 2019, FMC followed up with the launch of its mobile application in 2022. The new mobile app is fully native in both iOS and Android environments and mirrors the functionality found on FMC's website, including making payments, obtaining loan information, and downloading documents.

Business continuity and disaster recovery 

FMC maintains a sound disaster recovery and business continuity plan, including response procedures to address operational disruption due to a pandemic. The company has a data center in Fishers and, since our previous review, hosts production servers in the AWS cloud. We believe FMC has a well-developed disaster recovery and business continuity plan. Highlights of the program include the following:

• All data is backed up daily.
• Backups are transferred to cloud storage with real-time retrieval capability.
• Servicing data is handled through Sagent datacenters.
• Telephony technology is housed in two locations (Indiana and New Jersey) with failover capability.
• All tier 1 systems have a six-to-eight hour recovery time objective and a 15 minute recovery point objective.
• The use of multi-region recovery within the Amazon cloud.
• Good diversification of operational groups across its servicing sites as well as remote work capability.
• The last disaster recovery test was conducted on May 10, 2022. There were two recommendations within the report that FMC says they have implemented.

Cybersecurity 

FMC has policy and procedures within its information technology group to manage compliance with all Federal and state requirements pertaining to information security. The former head of IT governance and controls was promoted to chief information security officer (CISO) in 2021. She reports to the chief technology officer. Information security operations is comprised of an in-house security operations center, an information security team, and added since our previous review, a vendor security team and an IT policy and controls team. The vendor security team is responsible for the oversight and monitoring of vendor security hygiene. It completes cybersecurity assessments for all tier one and tier two vendors annually using a vendor cybersecurity assessment platform and uses a vendor application to perform continuous monitoring to identify any risks both of which were implemented since our prior review.

Staff size increased by approximately 13 for a total headcount of 31 dedicated to security operations. FMC has focused on industry training of its information security staff and there are 33 certifications across the 31 staff. FMC's CISO is the current chair of the MBA's cyber security working group and a member within the FBI's InfraGard program.

Tools and practices used by FMC for data security include:

• Laptops and desktops are full disk encrypted;
• Remote access requires two-factor authentication;
• Virtual devices are run on a secure cloud desktop service;
• Email is encrypted;
• Firewall, encryption, and monitoring technologies are in place;
• Phishing simulation campaigns are conducted monthly;
• Data is written once to a vault and thereafter, is read only as a tool to protect against ransomware; and
• Annual information security training is required of all employees.
• User access reviews are completed quarterly.
• Monthly penetration tests are performed by a vendor. The last of which was completed July 29, 2022, and no material issues were noted.
• A SIEM is employed to monitor and manage device and user activity.
• Annual tabletop exercises utilize a different vendor partner each year.

Internal controls

We believe FMC has sound governance and risk management framework. Its three lines of defense model incorporates multiple levels of measures and controls to monitor and detect risk. Board, executive management committees, and executive management subcommittees oversee the risks and there are appropriate levels of coordination and communication between the different lines. It uses a governance, risk, and compliance (GRC) tool to house its risk control self-assessments (RCSAs), issues and associated corrective action plans for all exams except for regulatory items, which are tracked separately by compliance.

Policies and procedures 

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

Quality assurance and call monitoring 

FMC's first line of defense includes business process testing and internal controls testing performed by the servicing governance and controls department. The servicing operational teams conducted process testing in the past, with oversight performed by QC under the risk management department. Since our prior review, FMC added the business process testing to the servicing management operational excellence group and set up a dedicated team to perform the servicing testing. The team is comprised of 17 staff members who develop tests and perform the testing. Two of the 17 are dedicated to IT, creating automated testing for all new processes as they are implemented. In addition to the business process testing, servicing governance and controls use more than 173 illogical reports to identify possible issues. The team completes root cause analysis on the issues to determine what, if any, corrections need to be made.

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

A QA team within the call center performs call monitoring on 13 calls per agent per month. The scorecards used for monitoring include regulatory requirements, as well as soft skill evaluation sections. The monitoring results from QA and the supervisor are rolled into the agent's monthly scorecard. The agent scores roll up to a supervisor and region score, as well as a key performance indicator tracker for each department. QA uses a speech analytics tool on 100% of calls to capture customer sentiment, tone, and inflection. Any calls that indicate an issue, are added to a report and the issue is prioritized as high, medium, or low. High- and medium-rated items go to the customer advocacy team for handling, while the low-rated items go to the appropriate operations group. With the use of the analytics tool on all calls, the calls reviewed by QA are targeted based on scoring trends. In addition to QA call monitoring, supervisors within the servicing division monitor two calls per agent per week and servicing management participate in some call calibrations sessions that are held several times a week.

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

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

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

Compliance and risk quality control 

FMC's regulatory compliance group is led by the chief compliance officer, reporting to the chief corporate risk officer. The compliance program consists of:

• Administration of regulatory compliance management across FMC;
• Performance of compliance testing, root cause analysis, and remediation to address gaps in compliance;
• Management of regulatory and investor changes through monitoring, tracking, implementation, and reporting to the board-level office of the president;
• Maintenance and review management of the central repository of all policies related to consumer protection laws;
• Establishment and maintenance of the compliance curriculum, development of the modules, and tracking adherence to training requirements.

The risk quality control team is part of the second line of defense and reports through the corporate risk department. The team is comprised of 20 staff members dedicated to developing and executing tests against servicing processes. The servicing quality control department performs monthly regulatory and QC testing of federal and state, internal P&P, and investor requirements. Both a statistical sample and ad hoc targeted reviews are tested. Formal reporting is provided to management monthly and to senior executives quarterly. The reporting provides a summary of the reviews performed, the findings, and highlights of any critical defects, management responses and action plans, and defect rate trending. We reviewed copies of the senior executive quarterly reports which include an overview of the review purpose, the summary of results, result trends, defect rates, and defects by servicing function. Details of findings at a defect level are provided along with the associated corrective action. We found the reports to be thorough, comprehensive, and clear.

Internal and external audits  

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

• All auditable entities are assessed for risk at least annually, although additional real-time analysis considers changes resulting from various factors.
• The annual audit plan is developed from the risk assessment, with high-risk audits conducted every 12 to 18 months, medium-high risk audits conducted every 18 to 24 months, and low risk audits conducted every 36 months.
• The audit plan is reviewed and approved by the audit committee. Any significant changes to the plan, based on a reassessment by the internal audit department, requires audit committee approval.
• Internal audit issues and action plans are tracked in the governance, risk, and compliance (GRC) tool and reported quarterly along with the status of all planned audits, to the audit committee.

In November 2020, a new head of internal audit was hired. Since then, the following changes to the MAP process have been implemented:

• A more tracked process, including weekly audit updates and quarterly audit committee reporting;
• MAPs are reconciled with the risk management department monthly to verify alignment between the groups; and
• The head of internal audit meets monthly with management to review closed MAPs and a view of those that are coming due within 30, 60, and 90 days.

There were 14 planned servicing audits for 2021 and 2022. Of these, nine were completed and were provided to us for review. The audits were clear and comprehensive, including the time period covered, purpose and scope, testing completed, conclusion, detailed findings, and MAPs. There were no material issues cited. We also reviewed the 2021 Uniform Single Attestation Program for Mortgage Bankers (USAP) and the Service Organization Controls (SOC) 1 report. There were no areas of non-compliance in the USAP report and no exceptions identified in the SOC1 report.

Complaint management

FMC has robust processes in place for complaint management and analysis. Written and verbal complaints are entered into a proprietary system for tracking. The legal department responds to and monitors written complaints by engaging the business unit(s) and compliance for research. Verbal complaints are directed to call center supervisors for system entry. Daily control reports are pulled from the tracking system to monitor adherence to response timelines.

Since our prior review, servicing's complaint analysis has been moved under the servicing management operational excellence group. There are five team members who perform written complaint reviews which includes reviewing all logged complaints, listening to all associated calls, determining if the issue could have been resolved on the telephone, identifying if the complaint was controllable or uncontrollable, and identifying complaint trends. Complaint reports are provided to senior management and include action plans for process improvements based on identified trends.

Speech analytics is also used as part of the complaint management process. Red flags, key words, and customer sentiment identify calls that are added to a daily report. There are 13 customer experience ambassadors who research these calls and contact borrowers to try to resolve the issue identified. FMC also uses speech analytics to identify agents who could benefit from additional training.

As of June 30, 2022, FMC averaged two business days to acknowledge customer Real Estate Settlement Procedures Act complaints (comparable to peers) and nine calendar days to resolve those complaints.

Vendor management

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

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

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

Vendor management develops a scorecard for each vendor with borrower interaction based on a standard template using key performance activities associated with the service-level agreement at the time of onboarding. Once established, vendor management compiles the scorecard monthly and reviews it with the business prior to finalizing and sending it to the vendor. Meetings between the line of business and vendor are held and facilitated by vendor management.

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

Insurance and legal proceedings

FMC has represented that its directors and officers, as well as its errors and omissions insurance coverage is in-line with the requirements of its portfolio size. As of the date of this report, FMC disclosed pending litigation and related financial reserve amounts, which management says it does not deem significant.

Loan Administration--Primary Servicing

The loan administration subranking is AVERAGE for primary servicing.

FMC's servicing and correspondent lending organization is made up of nine departments, five of them relate to servicing operations. These include:

• Servicing management operational excellence which includes the management and oversight of data integrity, business controls, issue management, employee engagement, training and development, and the end-to-end customer experience.
• Servicing customer engagement is the call center managing all inbound and outbound calls for borrowers whose accounts are less than 90 days delinquent as well as borrower outreach programs. This department is also responsible for content management of the borrower website and mobile application.
• Servicing operations, which is comprised of loss mitigation, escrow administration, bulk transfers, servicing letter oversight, and servicing finance.
• Servicing default covering foreclosure, bankruptcy, REO, claims, property preservation, default business controls, invoice management, title curative, and contested foreclosure and mediations.
• The servicing controller group covering loan and investor accounting functions including investor reporting, investor accounting, cash management, accounts payable, and EBO strategies.

New-loan boarding

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

Payment processing

FMC has an efficient cash management operation. Approximately 92% of all payments are received electronically, of which almost 35% are made through the servicer's website. We believe FMC has good payment processing procedures to minimize the risk of loss from fraud and human error. Highlights and controls of the payment processing function include the following:

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

Since our prior review, FMC implemented automation which retrieves payoff wire information from the bank used by the system to process the payment without user intervention.

Investor reporting and accounting

FMC's investor reporting and accounting department is responsible for reporting, remitting, and reconciling accounts according to investor guidelines. Most of the portfolio is made up of loans owned by Ginnie Mae, with Fannie Mae and Freddie Mac making up the bulk of the remaining loans (see table 3). In 2021, FMC's investor accounting department developed and implemented a bank reconciliation database. The database tracks reconciliations and routes for signoff. Scripts also automate the loan buyout process.

Highlights and controls of the investor reporting process include the following:

• 100% of investor reporting and remitting is transmitted electronically.
• Principal and interest custodial bank account balances are monitored daily for sufficiency of funds.
• Clearing accounts are reconciled daily.
• Monthly investor scorecards issued by investors are reviewed with senior management.
• Monthly meetings are held with servicing management and the servicing controller to review bank account reconciliation status and open reconciling items.
• For the semiannual SEAM period ended June 30, 2022, FMC reported one item over 60 days and one over 90 days.

Table 3

Escrow administration

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

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

• Non-reimbursable tax penalties amounted to $0.11 per loan, which is slightly higher than reported by peers.
• Open items reports for both tax and insurance are conducted both weekly and monthly.
• A bi-weekly meeting is held with the tax vendor to review the portfolio's tax status.
• Customer service calls for both the insurance and tax vendor are monitored and calibrated by FMC with a monthly scorecard provided to the vendors.
• The insurance vendor's average speed of answer (ASA) was approximately 40 seconds with a 2.53% abandonment rate, which is slightly higher than peers but we consider manageable;
• The tax vendor's ASA is 16 seconds with a .56% abandonment rate which we consider good.
• A monthly certification of premiums paid is performed by two levels of escrow management.
• FMC performs an audit of the vendor lender-placed insurance policy work monthly, including the letter cycle timing.
• Monthly audits are performed to ensure the interest rate paid on escrow accounts is accurate.
• Control reports identify all loans requiring an escrow analysis including those converting to escrow.
• A manual review is completed for loans with escrow shortages or overages outside of a set threshold.
• A monthly reconciliation of loans with mortgage insurance is coordinated with the insurance companies.
• For loans scheduled for a large increase in the escrow payment, FMC works with customer engagement, who launch calling campaigns to discuss the payment changes.

Mortgage reconveyance

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

Special loans administration

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

A vendor searches the SCRA status of borrowers monthly.

Customer service and collections

FMC has a combined customer service and collections team which is called customer care and falls under the servicing customer engagement department. The customer care team handles all inbound calls from borrowers whose accounts are less than 90 days delinquent, early stage collection calls, and welcome calls. In addition to FMC staff, FMC uses three domestic vendors to handle customer service calls, two of which were added in 2021 to offset turnover. For the period ending June 30, 2022, 24% of the customer service call volume was handled by the vendors. Calls are routed between FMC and vendor staff so all call statistics are tracked in aggregate. We believe tracking the vendor's statistics separately provides for more effective oversight and vendor management. Customer service also completes the welcome calls for newly acquired loans.

Since our prior review, the following customer engagement enhancements have been initiated:

• Chat was launched at the beginning of 2022 with automated responses managing about 50% of the questions with the remaining managed by a team of seasoned agents;
• A special team of agents was created to handle all inbound calls from borrowers on newly boarded loans;
• Speech analytics is utilized to identify agents that may need additional training;
• Customer outreach program participation has become more active including partnering with counseling agencies, providing a service resource guide, and attending outreach events in-person and virtually;
• The first phase of SalesForce as the customer care case management system was launched for chat, payoffs, and documents; and
• The FMC mobile application which mirrors the FMC website functionality was deployed.

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

• Management turnover rate of 10.8%, which is better than the average of peers but staff and vendor turnover rates of 49.6% and 42% were much higher.
• The percent of website users of 70% is a drop from prior reporting resulting from the large number of loans boarded during 2021 and 2022.
• The interactive voice response capture rate of approximately 47% is lower than the rate reported by peers.
• FMC's customer service ASA and abandonment rates (see table 4) were both improved from prior reporting periods and are in line with what we consider acceptable levels.
• The in-house risk model scores loans for call attempts and is refreshed quarterly with a FICO score.
• Customer care teams are in the Marlton and Beaverton offices.
• Workforce management is used for staff forecasting and scheduling.
• LexisNexis is used for bulk skip tracing.

Table 4

Default management

FMC has lower average industry experience and tenure across the default groups compared to peers. Turnover rates for customer care staff, loss mitigation management, and bankruptcy management and staff are higher than we see with peers. Alternatively, loss mitigation staff, and foreclosure management and staff turnover rates are better than averages of similarly ranked servicers (see table 5).

Table 5

Table 6

Loss mitigation

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

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

In 2021, FMC implemented its loss mitigation portal for borrowers. Through the portal, borrowers can:

• Apply for workout solutions;
• Upload documents;
• View the status of the workout and the path to curing their delinquency; and
• Accept, reject, or appeal the workout decision

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

• Underwriting handles all loan types and investors across sites.
• Modifications are reviewed twice prior to being booked in the system.
• The business control team completes in-process reviews of loss mitigation including intake, 100% review of denials, and cases closed for incompleteness, and a sample of approvals.
• The average number of days to a workout decision was just over 24, which is longer than peers.
• The ASA and abandonment rates were what we would consider to be good (see table 4, above).

Foreclosure and bankruptcy

Default services at FMC includes foreclosure, property preservation, default support (including invoicing, title cures, litigation, valuations, and pre-sale property preservation), bankruptcy, and claims. Since our last review, FMC has made the following changes in its default operations:

• Foreclosure worked with FMC's corporate analytics team to streamline the foreclosure referral review process by automating the aggregation of data points;
• Created a referral dashboard providing foreclosure management an overview of potential referrals including loan level status impediments to referral;
• Built a default command center comprised of seven people who are regionally based and work with an assigned group of law firms. The command center team uses dashboards to identify issues with pipelines and work with the firms to address the issues.
• Transitioned to the CloudClaim system for claims management;
• Moved the claims team under default business controls.

Key default attributes, controls, and metrics include:

• TEMPO, a default management and loss mitigation system, is used to manage default workflows and communicate with attorneys
• A pre-foreclosure referral review is completed to ensure compliance with all regulatory guidelines.
• All referrals go through a three-tier review.
• Document execution is managed through a TEMPO queue.
• A separate title curative team works with inside and outside counsel.
• FMC completes four checkpoints prior to sale (at 30 days, 15 days, seven days, and 24 hours).
• Monthly calibration meetings are held with loss mitigation to review files with foreclosure holds.
• The percentage of foreclosures completed to standard was 68.5% which is lower than that reported by peers.
• A systemic daily scrub of the portfolio identifies changes in bankruptcy status.
• The bankruptcy department has a dedicated cash resource for payment posting.
• A proprietary best disposition tool is used with FHA and VA loans.
• FMC reported no claim denials as of December 31, 2021.

With the expiration of foreclosure moratoriums, FMC leveraged staff at three of their major firms to assist with the compilation of the referral package. Once compiled, the package was provided to FMC for review and approval, as appropriate. With the reduction in referral volume, they have moved to using a single firm.

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

Real estate-owned (REO)

FMC uses three auction vendors (one was added in 2021) for its default auction program driven by the investor and insurer. The intent of this program is to drive up third-party sales at foreclosure sale in order to reduce costs.

Aside from the addition of a new auction vendor, since our previous review FMC has:

• Reorganized REO and moved it organizationally to default from finance.
• Launched a property risk model in April 2021 that is used as part of its best execution analysis.
• Created a legal tracker for contested foreclosures and mediations to use for the management of fees and oversight of the cases.
• Implemented OrangeGrid to manage the order and results of property inspections.

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

• Gross sales-to-market ratio of 108%;
• Average inventory turnaround time of 88 days;
• Average days-to-market and asset post-eviction-to-closing of 144 days; and
• Average loss severity of 20%.

Financial Position

The financial position is SUFFICIENT.

Related Research

• Freedom Mortgage Corp. AVERAGE Residential Primary Servicer Ranking Affirmed; Ranking Outlook Stable, August 16, 2022
• Select Servicer List, July 26, 2022
• Freedom Mortgage Corp. May 17, 2022
• Servicer Category Descriptions Expanded And Revised, Feb. 28, 2022
• Servicer Evaluation: Freedom Mortgage Corp., Feb. 17, 2021
• Servicer Evaluation Spotlight Report™: Environmental, Social, And Governance Factors Have Consistently Powered Our Servicer Evaluation Rankings, Nov. 16, 2020
• Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019