Ranking overview
		Subrankings
Servicing category	Overall ranking	Management and organization	Loan administration	Ranking outlook
Commercial mortgage loan special servicer	AVERAGE	STRONG	AVERAGE	Stable
Small balance commercial mortgage loan primary servicer	STRONG	STRONG	STRONG	Stable
Small balance commercial mortgage loan special servicer	STRONG	STRONG	STRONG	Stable
Financial position
SUFFICIENT

Rationale

S&P Global Ratings' rankings on Community Loan Servicing LLC (CLS) are STRONG as a small-balance commercial mortgage primary and special servicer and AVERAGE as a commercial mortgage special servicer. On July 28, 2023, we affirmed our rankings and removed the small-balance commercial mortgage loan rankings from RankingWatch, where we had placed them with negative implications on July 21, 2022, following the sale of its residential mortgage loan portfolio and supporting operations to Mr. Cooper Group. The ranking outlook on all three rankings is stable (please see Community Loan Servicing LLC Rankings As Commercial Mortgage Servicer Affirmed; Ranking Outlooks Stable, published July 28, 2023).

Our rankings reflect CLS':

• Industry-experienced senior management team;
• Comprehensive risk management practices with multiple lines of monitoring and testing;
• Effective systems and technology;
• Accelerated loan count and unpaid principal balance growth in its small-balance commercial loan portfolio;
• Diverse property types in its small-balance primary and special servicing mortgage loan portfolios;
• Loan administration track record with practices and procedures that are largely unchanged, except for investor reporting, which is now outsourced following the sale and decoupling of its residential loan portfolio;
• Limited track record for asset resolution and disposition of large complex commercial loans; and
• Special servicing mandates that are largely linked to its originations and loan acquisition channels.

Since our prior review (see " Servicer Evaluation: Community Loan Servicing LLC -- Commercial And Small-Balance Commercial," published July 26, 2021), the following changes and/or developments have occurred:

• Many of CLS' loan administration areas were re-organized and rightsized following the sale of its residential loan portfolio (further described below).
• Changes to senior leadership include a new CEO who also serves as the chief operations officer of Bayview Asset Management (BAM), and a new senior vice president (SVP) of legal and compliance and a new first vice president of loan administration who replaced the prior leaders that departed as part of the residential loan platform sale.
• BAM added a chief information security officer to lead information security.
• CLS transitioned its large-balance commercial loan and bridge loan portfolios to the McCracken STRATEGY servicing system.
• The total small-balance commercial loan portfolio increased 58% by loan count during 2022, with the growth predominantly derived from new single-family-rental (i.e., debt service coverage ratio) loan originations.
• CLS' training and development for new and existing employees is now managed by BAM's training department as a shared service.
• It enhanced its interactive voice response unit to apply phone payments to a specific loan if a borrower has multiple loans.
• CLS transitioned to a new document imaging application.
• It implemented a different contact center software system.
• It no longer uses a lockbox to process payments by check, routing all physical checks to its servicing site.

Furthermore, CLS made multiple key senior management, staffing, and organizational changes following the sale of its residential servicing platform assets in 2022, which at the time was the larger part of the company. The organizational changes were largely in the risk management, compliance, and loan administration areas that, prior to the sale, were sized and organized to support the larger residential loan portfolio in addition to CLS' commercial mortgage loans and assets. These departments remain largely organized by function. While many of the practices, processes, and controls remain in place, there was some consolidation of functions to reflect the lower transaction processing volume demands and reduced regulatory scrutiny of the commercial real estate portfolio.

We also note that in early 2022, Lakeview Loan Servicing LLC (Lakeview; a related company) announced a security incident involving unauthorized access to its file servers that was identified in December 2021. The investigation determined that an unauthorized person obtained access to the files on Lakeview's file storage servers from Oct. 27, 2021, to Dec. 7, 2021. Subsequently in 2022, the review process revealed CLS' customers were also affected. CLS indicated that its operations were not affected.

The ranking outlook for all three rankings is stable. We believe CLS will continue to be an effective servicer for the small-balance commercial and commercial loan portfolios that it services. Management has demonstrated continued investment in personnel and technology as it grows its commercial loan servicing portfolio, and CLS has largely maintained many of the controls and process rigor that were in place before divesting its residential servicing operations. Should these conditions change, it could potentially affect our rankings on CLS as a small-balance commercial mortgage loan and commercial mortgage loan special servicer.

In addition to conducting an onsite meeting with servicing management, our review includes current and historical Servicer Evaluation Analytical Methodology data through Dec. 31, 2022, as well as other supporting documentation the company provided.

Profile

Servicer profile
Servicer name	Community Loan Servicing LLC
Primary servicing location	Coral Gables, Fla.
Parent holding company	Bayview Asset Management
Loan servicing system	Servicing Director® and STRATEGY

CLS, formed in 1999, operates as a wholly owned subsidiary of Bayview Asset Management LLC (BAM) which is owned by Bayview Financial Holdings L.P. CLS is headquartered in Coral Gables, Fla.

CLS provides primary and special servicing for small- and large-balance commercial mortgage loans with the small-balance commercial loans comprising most of its commercial mortgage loan servicing portfolio. In 2022, CLS completed the sale of its residential loan servicing assets leaving the company as a pure-play commercial loan servicer. Operationally, it manages its servicing based on portfolio designation, and its staff has expertise investing in mortgage-backed securities and asset-backed securities (including collateralized loan obligations).

The small-balance commercial loan portfolio, with an average loan balance of $242,000, is comprised of legacy (seasoned loans) and an increasing percentage of newer vintage loans. The newer vintage debt-service coverage ratio (DSCR) loans originated by its Silver Hill affiliate and other acquisition channels comprise 41% of the small-balance servicing portfolio by loan count. The next largest cohort are legacy loans (37%) which make up a smaller percentage compared to our prior review as that portfolio continues to runoff.

The large-balance commercial portfolio is primarily composed of BAM's commercial investments, most of which have an unpaid principal balance (UPB) of more than $1 million. The commercial loan special servicing portfolio averages $2.6 million in UPB, with eight commercial real estate loans aggregating $20.7 million as of Dec. 31, 2022, including a single asset with an UPB of approximately $10 million. It services 352 additional performing loans with $1.75 billion in UPB from which it would perform special servicing if warranted. The company continues to originate and acquire loans through its affiliates, largely retaining servicing on loans over $1 million in UPB. It also launched commercial property-assessed clean energy (CPACE) lending in 2021.

Table 1

Small-balance commercial loans (primary and special servicing)
	UPB (mil. $)	YOY change (%)	No. of loans	YOY change (%)
Dec. 31, 2022	1,798.5	57.7	6,703	59.6
Dec. 31, 2021	1,140.4	(1.1)	4,201	(1.0)
Dec. 31, 2020	1,152.8	9.9	4,243	6.8
Dec. 31, 2019	1,048.9	28.2	3,971	18.4
Dec. 31, 2018	818.3	(15.3)	3,354	(11.9)
UPB--Unpaid principal balance. YOY--Year over year.

Table 2

Commercial loan special servicing(i)
	UPB (mil. $)	YOY change (%)	No. of assets	YOY change (%)	No. of staff (ii)	YOY change (%)
Dec. 31, 2022	20.7	(54.4)	8	(20)	36	38.5
Dec. 31, 2021	45.3	(33.7)	10	(54.5)	26	8.3
Dec. 31, 2020	68.3	165.4	22	(35.3)	24	14.3
Dec. 31, 2019	25.7	(58.2)	34	(64.2)	21	(12.5)
Dec. 31, 2018	61.6	(28.5)	95	(19.5)	24	(17.2)
(i)Excludes small-balance commercial loans. YOY--Year-over-year. UPB--Unpaid principal balance. (ii)Includes commercial loan servicing department staff only.

Management And Organization

The management and organization subrankings are STRONG.

Organizational structure, staff, and turnover

CLS made multiple key senior management, staffing, and organizational changes following the sale of its residential servicing assets in 2022, which at the time was the larger part of the company. The organizational changes were mostly in the risk management, compliance, and loan administration areas that, prior to the sale, were sized and organized to support the larger residential loan portfolio in addition to its commercial mortgage loans and assets. While many of the practices, processes, and controls remain in place there was some consolidation of functions and staffing headcount rightsized to reflect the lower transaction processing volume demands and reduced regulatory scrutiny of the CRE portfolio.

CLS continues to be supported by BAM with a shared services approach for certain functions such as technology, human resources, and internal audit. It uses an offshore vendor to support certain loan administration functions such as loan boarding, payment processing, and escrow.

Its senior and middle managers exhibit a solid level of industry experience and possess good tenure with the company (see table 3), consistent with the averages observed in our prior review. The chief operations officer (COO) of BAM took over as CEO of CLS, a role the COO previously held. Key senior compliance and loan administration leadership roles were backfilled by internal promotion of experienced senior managers, as departing executives left as part of the sale. Senior and middle management experience averages (see table 3) are similar to experience levels exhibited at the time of our prior review.

CLS has 69 employees with 36 of those working in the commercial division that is led by the senior vice president of commercial servicing and asset management, an executive with 23 years of industry experience. The CRE backgrounds of senior managers in that department include significant experience in asset management, including workouts, foreclosures, restructures, and bankruptcies. The commercial servicing staff experience is enhanced by some team members holding advanced degrees, broker licenses, and professional designations.

During 2022, the company increased core commercial servicing staff meaningfully on a percentage basis (38%), adding 10 employees to core roles such as asset managers, relationship managers, and analysts. Personnel turnover within its commercial core servicing division was 11.5% for the full-year, 2022 was relatively low and is similar to peers. Industry experience, company tenure, and turnover rates are as follows:

Table 3

Years of industry experience/company tenure
	Senior managers		Middle managers		Asset managers		Staff
	Industry experience	Company tenure	Industry experience	Company tenure	Industry experience	Company tenure	Industry experience	Company tenure
Small-balance commercial primary	21	11	15	9	N/A	N/A	15	7
Small-balance commercial special	21	11	15	9	22	12	15	7
Commercial special	21	11	15	9	22	12	15	7

Training

CLS provides training for new employees and existing staff through internal and externally developed courses. Other key training components and metrics we considered include the following:

• An industry recognized learning management system disseminates web-based courses and tracks all training activities.
• New hires receive 40 hours of core mortgage servicing, systems, and policies and procedures training.
• New employees are enrolled in an online third-party provided training program covering commercial mortgage banking topics.
• New hires are assigned a mentor following training for 30 to 60 days.
• Commercial personnel are required to complete at least 20 hours of compliance and regulatory training annually and averaged 36 hours of training per CRE employee in 2022.
• Outsourced staff have the same training requirements as CLS employees.
• Employee cross-training.
• Employees have access to a professional development program for high-performers and skills development courses sourced through a vendor.
• A formal leadership development program is offered through online and instructor-led courses.

Specific training is provided to individual departments to grow specialized skills. These specialized training programs include:

• An overview of the commercial mortgage-backed securities (CMBS) industry and lending standards;
• An outline of pooling and servicing agreements, focusing on special servicers' roles and responsibilities;
• A real estate mortgage investment conduit (REMIC) overview, including how to identify REMIC violations;
• Advanced environmental, foreclosure, and bankruptcy strategies for large assets;
• Underwriting and financial analysis training; and
• Detailed reviews of new policies and procedures, system changes, and reporting requirements adopted by CLS for CMBS special servicing, including reporting by the Commercial Real Estate Finance Council.

Systems and technology

CLS has comprehensive technology systems to support its commercial servicing operations. It has well-designed data backup routines and disaster recovery preparedness. It also maintains systems and tools to address information security risks.

Servicing system applications 

Key technology applications include the following:

• Servicing Director is the servicing system used for the small-balance commercial mortgage loan portfolio for loan detail and property-level data, including changes in loan balances, tracking collateral histories, and monitoring tax/insurance escrows.
• CLS migrated its large balance and bridge loan portfolio from Servicing Director to the McCRACKEN STRATEGY servicing system in April 2023. STRATEGY is a widely used third-party servicing system providing transaction processing, accounting, and portfolio management and monitoring functions among others.
• Real Estate Asset Management Module (CSAM), a proprietary system, provides a complete asset management workstation that allows asset managers to view pertinent asset-level information and model various workout scenarios, and track the asset resolution process. CSAM also provides recommended solutions based on net present value.
• Default Tracking System (DTS), a proprietary default and bankruptcy loan monitoring system, monitors critical steps (i.e., court filings, litigation timelines, etc.), assigns outside counsel, and tracks overall timelines.
• SharePoint is used for corporate/department communications, including archiving forms and training materials.
• Client Approval System is a secure web portal used to exchange loan request and approval documentation with clients.
• Filenet, a cloud-based content management system, serves as the document retention system.

Business continuity and disaster recovery 

The company maintains disaster recovery (DR) and business continuity (BC) plans to respond to disaster events. The plans are reviewed annually along with an annual business impact analysis. We considered the following features of CLS' BC and DR plans:

• DR and BC specific information is stored and managed in a vendor-based system.
• The primary and back-up Tier 4 data centers are in geographically diverse locations.
• Data replication and tape backup cycles provide data recovery capabilities.
• We consider the recovery time and recovery point objectives to be satisfactory for infrastructure and systems it considers tier 0 and tier 1.
• The BC plan is exercised quarterly.
• The DR plan is tested annually, including a full-systems DR test. The most recent BC and DR tests were completed in May and September 2022. We reviewed the summary reports for these tests, which indicated no material issues.

Cybersecurity 

CLS, through BAM via shared services, deploys cyber and information security protocols to protect data and mitigate the risk of cyber threats.

In early 2022, Lakeview Loan Servicing (a related company) announced a security incident involving unauthorized access to its file servers that was identified in December 2021. The investigation determined that an unauthorized person obtained access to files on its file storage servers from Oct. 27, 2021 to Dec. 7, 2021. Subsequently in 2022, the review process revealed customers with CLS were also affected. We note that the company indicated that CLS operations were not affected.

Key components include the following:

• A formal incident response plan;
• Since our last review, BAM hired a new chief information security officer (CISO) to lead its cybersecurity program;
• A managed detection and response solution to monitor, triage, and address threats;
• Endpoint and network threat monitoring solutions;
• It performs an annual tabletop incident response exercise;
• A zero-trust network security model;
• Since our last review, it implemented annual purple team security assessment and response exercise;
• An independent third party performs quarterly network penetration testing, the most recent of which was completed in September 2022;
• Risk-based vulnerability patch management program;
• Uses a data loss prevention solution;
• Performs vulnerability scans on a periodic basis;
• Sends quarterly phishing simulation exercises to employees; and
• Annual security training for employees.

Internal controls

CLS has a solid risk management and control framework to monitor and detect risk. Its framework comprises multiple lines of defense that are independent of the operations. Compliance and risk committees oversee the risk at the organizational level. It has an internally developed governance, risk, and compliance (GRC) software system to coordinate and manage the multiple components of its risk and control framework.

Policies and procedures 

The company has sound governance for developing, revising, and disseminating its policies, procedures, and letters. The policies and procedures (P&P's) are in a consistent format and available from the company intranet. New P&P's or changes to existing P&P's require compliance approval. The policies and procedures documents are certified annually or as changes dictate.

Quality assurance 

The first line of defense includes operating management reporting and a quality assurance team that sits outside of the business units, providing a level of independence and the opportunity for a more focused and consistent approach to quality testing across the platform. Most quality assurance tests are conducted weekly. CLS also augments its transactional testing with data analysis and business intelligence dashboard reporting to ensure processes and controls are operating as designed. Dashboards can display loan level exceptions, and business unit managers receive notifications of issues in near real-time as they are identified. The reporting cadence and corrective action testing have the same rigor as that of the compliance quality control testing.

Compliance and quality control 

Compliance and quality control are the second lines of defense, and independent of the servicing operation. The compliance department provides, among other functions, advisory services, issue management, and policy and procedure administration.

The quality control team operates under the compliance department. It completes transactional testing on a risk-based frequency (either monthly or quarterly) to monitor compliance with policies and investor requirements. An internal software is used for sampling and testing. In our view, findings are appropriately communicated to the business units, compliance committee, and other control and risk management areas.

Issues identified from quality control testing, or other lines of defense, and their corrective action plans are documented in SharePoint issue tracking workflow and managed by the quality control team. The team also conducts a root-cause analysis to identify improvement opportunities and completes validation testing to ensure the issue is resolved.

Internal and external audits 

The third line of defense is the independent internal audit department. We believe CLS has a reasonable internal audit methodology. Its audit plan is based on risk and is largely derived from its annual risk assessment with high-risk areas reviewed on an 18-month frequency. The internal audit department also uses continuous monitoring for certain areas. Since our last review, it implemented an audit software solution to manage its audit universe, ongoing audit projects, and house workpapers. Audit issues are classified by risk based on a defined criteria and are addressed through formal action plans that are tracked on an intranet site. In addition to a discussion with senior audit leadership, CLS shared a summary of the one commercial servicing related internal audit and one advisory review completed in 2022. A review of the summaries found that any findings were resolved and validated.

We also reviewed CLS' 2022 Uniform Single Attestation Program and Regulation AB reports. The reports did not identify any material instances of non-compliance.

Vendor management

CLS has an established vendor management framework to manage the procurement process, provide ongoing oversight, and support the business units in monitoring vendor performance. New vendors are subject to a thorough due diligence process that evaluates the vendor's regulatory compliance, information security, and financial condition, among other areas. Depending on several risk factors, vendors are assigned a risk tier of critical, important, or incidental. Following the residential operations sale, the number of active vendors is significantly smaller. Additional factors we considered in our analysis include the following:

• A web-based software-as-a-service system manages procurement and stores vendor documents, tracks periodic reviews, and documents performance assessments.
• Vendor performance assessments occur either quarterly or annually, depending on the assigned risk level.
• Monthly service-level agreements are monitored.
• Annual on-site reviews of high-risk vendors, which CLS transitioned back to since our last review.
• CLS maintains sound oversight routines to monitor its offshore vendor, and the company meets with the vendor weekly to review operational performance.
• A vendor exit strategy plan is prepared for all vendors.
• The company uses a formal invoice review and validation process.
• Attorney vendors are subject to annual on-site reviews and monthly scorecards to monitor key performance indicators. The team also holds bi-weekly calls with the law firms.

Insurance and legal proceedings

CLS 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--Small-Balance Commercial Primary Servicing

The loan administration subranking is STRONG for small-balance primary loan servicing.

CLS maintains a well-controlled and efficient loan administration area for small-balance commercial loans. It primarily services small-balance commercial loans for related funds under BAM, including loans originated by an affiliate company and seasoned performing secondary market acquisitions. The portfolio contains a variety of collateral types, with single family rental and retail making up the majority by loan count (see table 4). The collateral mix has shifted year over year, with single family rentals comprising a meaningfully larger percentage of the portfolio compared to the prior year although there is marginal to moderate growth in mixed-use, office, retail, and multifamily loans. Before the divestiture of the residential servicing platform, many of the loan administration departments managed functions for residential and small-balance commercial loans. This means they were staffed and organized to manage a large loan volume that carried a meaningfully higher degree of complexity and regulatory risk. Following the sale, the loan administration departments are smaller in staff count (i.e. rightsized) to manage the smaller loan volume.

Table 4

Small-balance commercial primary and special servicing portfolio by property type and state
	UPB (mil. $)	UPB (%)	No. of properties	Properties (%)
Type
Single family rental (1 - 4 units)	694.3	38.6	3,259	43.9
Retail	356.2	19.8	1,401	18.9
Multifamily	227.1	12.6	799	10.8
Mixed Use	207.8	11.6	889	12.0
Office	133.5	7.4	441	5.9
All Other	179.5	10.0	640	8.6
Total	1,798.5	100.0	7,429	100.0
State
FL	241.3	13.4	880	11.8
CA	199.0	11.1	582	7.8
NJ	162.2	9.0	582	7.8
NY	143.4	8.0	428	5.8
TX	130.1	7.2	537	7.2
All Other	922.5	51.3	4,420	59.5
Total	1,798.5	100.0	7,429	100.0
Totals may not add due to rounding.

Table 5

Servicing portfolio by investor type
Loan type	UPB (mil. $)	UPB (%)	Loan count	Loan (%)
Other third party investors (REITs, investment funds, etc.)	1,798.5	100.0	6,703	100.0
Total	1,798.5	100.0	6,703	100.0

New-loan boarding

CLS has experience boarding new originations and secondary market acquisitions. The boarding of small-balance commercial loans to the servicing system is mostly automated, using a data management system. The boarding process includes multiple controls mitigating the risk of data errors. We note:

• CLS boarded 3,316 small-balance commercial loans during 2022 compared with 414 during 2021.
• It targets a maximum of five days to have all essential data boarded, which is in the range of peers.
• CLS formally tracks loan boarding accuracy and timeliness metrics, and it targets a maximum of five days to get essential data boarded to process payments and conduct investor reporting.
• Loan data are imported to a test module for data validation before boarding the live system.
• An offshore team completes a 100% document-to-system data check for critical data fields.
• CLS sends welcome letters within 10 days following boarding which is longer than we observe at similar and lower ranked servicers.
• There is an automated boarding process for multi-collateral and multi-borrower loans.
• It transitioned all commercial loan documents to a different document imaging system.
• The company reported no trailing loan documents for loans boarded more than six months prior to Dec. 31, 2022.

Payment processing

CLS has a well-controlled and efficient cash management and payment processing area. Most payments are posted electronically, although the company ended its use of a lockbox to process physical checks in 2022 to process checks internally which is not as efficient and increases the risk of posting error. We note that the company transitioned the bulk of the lockbox payment volume to ACH or website with those two channels now representing 86% of payments compared to 19% in the prior year period. Additional factors we considered in our analysis include the following:

• Most payments are processed electronically, with 6% of payments processed manually.
• Reporting is in place to monitor loans with a suspense balance; no suspense balances were aged over 60 days.
• A SharePoint site to facilitate and track payoff-quote requests.
• A quality control review of payoff quotes.
• The servicing portfolio has approximately 1,400 adjustable-rate loans (ARM), and there are multiple validation points for monitoring and updating the indices tables. Less than 20% of its ARM loans are linked to the LIBOR index. The company indicated it is prepared to manage the transition away from LIBOR to a replacement index for the applicable ARM loans.
• The capability to manage a springing lockbox if necessary.

Investor reporting

Following the sale of the residential operations, Mr. Cooper performs investor reporting as a service for CLS with oversight from a SVP at BAM. Mr. Cooper is a large residential mortgage loan servicer with experience servicing and performing reporting and investor accounting for loans in private label securitizations. The investor reporting team transitioned to Mr. Cooper with the sale of the residential servicing operations which provides continuity with reporting requirements for the specific portfolios. CLS indicated it is actively engaged with Mr. Cooper's reporting team and maintains expertise as it retained a senior manager and one employee to oversee investor reporting activity performed by Mr. Cooper. We note the following:

• Reporting and remitting is 100% electronic.
• The general clearing account is balanced daily.
• Investor reporting, remitting, and bank account reconciling activities are appropriately segregated,
• Custodial accounts are reconciled monthly.
• Remittance reports are reviewed and approved by the team manager.
• Process controls include secondary reviews of all remittance and account reconciliation reports.
• A track record of no unidentified commercial loan custodial account items aged over 60 days.

Escrow administration

The company maintains sound controls to manage its escrow administration activities. Most of the portfolio is escrowed for taxes (97%) and insurance (92%). Tax and insurance administration is largely outsourced to separate tax and insurance vendors. Key controls and metrics include the following:

• The tax vendor monitors non-escrowed loans for unpaid taxes and provides reporting for tax-escrowed loans.
• The servicing system provides tracking for escrowed and non-escrowed loans, including reserve account information.
• Asset managers monitor a report of taxes due on commercial loans to provide disbursement instructions.
• CLS incurred no non-reimbursable tax penalties during 2021 and a minimal amount during 2022.
• Insurance policy expiration dates are maintained in its system. The insurance vendor sends letters to the borrower in advance of policy expiration.
• Insurance policies are reviewed internally for compliance no less than annually.
• The insurance vendor is responsible for determining life-of-loan flood certifications at new loan setup; checking flood coverage and map changes.
• The insurance vendor manages loss claims processing and management.
• If the borrower does not provide evidence of insurance CLS will enforce a lender placed insurance policy retroactive to the last insured date.
• Weekly system-based exception reports are provided to the insurance vendor to address policy data exceptions or items that do not meet service-level agreements.
• Reserve account distribution requests require manager approval.

Asset and portfolio administration

CLS has sound portfolio management and surveillance practices covering asset and portfolio administration tasks. Relationship managers are assigned to performing loans as a single point of contact for common administration tasks. Inbound calls route to the assigned relationship or asset manager with a back-up queue for borrowers that did not authenticate. Key practices that we considered in our review are as follows:

• A dedicated performing relationship or asset manager is assigned as a borrower's single point of contact.
• Since our last review, for borrowers with multiple loans, it enhanced its interactive voice response unit to apply phone payments to a specific loan.
• A borrower website provides basic loan information and allows borrowers to make payments.
• CLS maintains a watchlist that is system-generated based on predefined triggers.
• Small-balance loan covenants often may not require borrowers to submit operating statements after closing; although we note that CLS received a low percentage of required operating statements for its small-balance loans in 2022, and lower relative to peers.
• The commercial credit team performs all financial statement spreads in-house.
• Third-party vendors primarily conduct the annual site inspections.
• Property inspections are completed monthly for non-performing small-balance loans. Property inspections are completed annually for performing loans that have a UPB greater than $2 million
• It reported completed inspections for all properties that met its inspection requirement criteria.
• A third-party vendor handles uniform commercial code (UCC) filings and renewals. As of Dec. 31, 2022, 2,798 loans (42% of the small balance loan portfolio) required UCC filing, and CLS reported no refiling lapses during 2022.

Borrower requests

Borrower requests usually originate from an inbound call to the relationship or asset manager, which instructs borrowers to submit their requests in writing. Dedicated staff on the commercial credit analysis team handle processing of credit-related requests. Excluding requests for forbearance, CLS reported completing four borrower requests during 2022 with a 30-day average decision time for those in the second half of 2022.

Early-stage collections

Prior to the sale of the residential operations, the early-stage collections activities for the small-balance commercial legacy portfolio were handled by the larger residential loan customer relations department. Since then, legacy loans are assigned to relationship managers to perform early-stage collections. This relationship manager strategy, although not as scalable as previously using the residential operations, is consistent with the early-stage collections for its other small balance commercial loan portfolios. We noted in our prior report that it may have also previously benefited from residential strategies such as best time to call analytics in addition to features such as outbound IVR. Furthermore:

• It uses system reports to identity delinquent loans for outbound calls.
• CLS uses outbound calls and emails to contact the borrower.
• The assigned relationship manager initiates borrower contact once the grace period expires (typically 15 days past due).
• The asset manager is trained to identify the reason for default and identify short term versus long term hardships.
• Initial written notices are issued five days following a missed payment date, and a second notice is issued after day 10.

Loan Administration--Small-Balance Commercial Special Servicing

The loan administration subranking is STRONG for small-balance special servicing.

Our prior review noted CLS' track record of managing troubled assets with its hybrid operation designed to maximize recoveries by combining aspects of residential and commercial loan servicing. As an example, as is common in residential servicing, it used collectors for earlier-stage collections for its legacy small balance commercial portfolio and then transitioned loans to an asset manager when an asset resolution opportunity is recognized, or the loan hits a specific delinquency trigger. Now all collection and asset resolution activity for the legacy portfolio is handled by the assigned relationship or asset manager in the commercial servicing division.

The special servicing portfolio decreased 45% (based on UPB) since the end of 2020, which was the height of the COVID-19 pandemic. Almost all loans in special servicing (91% by loan count) are from the legacy portfolio and the average UPB of the active loans is $213,000.

Since our prior review, the company added five small balance commercial loan asset managers and now has 13 asset managers allocated to the small balance loan portfolio, with one of the asset managers also handling real-estate owned (REO) assets. Asset managers case-load for 60+ day delinquent loans and REO assets is 53 loans/assets per asset manager.

Table 6

Special servicing portfolio
	Loan count	UPB ($)	Avg. loan size ($)	30-59 days delinquency (%)	60-89 days delinquency (%)	90+ days delinquency (%)	Total delinquency (% UPB)	Foreclosure (% UPB)	Bankruptcy (% UPB)
Dec. 31, 2022	661	140,909,760	213,177	0.00	18.24	22.54	40.78	58.41	0.76
Dec. 31, 2021	634	154,869,699	244,274	0.00	14.30	63.60	77.90	21.14	0.96
Dec. 31, 2020	1008	258,313,298	256,263	0.00	12.20	70.34	82.54	16.37	1.09
Dec. 31, 2019	704	168,255,220	238,999	0.00	24.86	44.18	69.04	28.13	2.84
UPB-Unpaid principal Balance.

Loan recovery and foreclosure management

CLS utilizes a high-touch, asset-level approach to resolve nonperforming loans across a broad spectrum of property types, with the majority being single family rental and retail. Depending on the portfolio, asset managers may already be assigned, or in the case of the legacy portfolio, transferred to an asset manager no later than the 90th day of default. Key points:

• Proactive timelines are utilized to initiate borrower contact through telephone calls and letters.
• Written notices are system-generated and sent to delinquent borrowers at pre-established past-due dates.
• Property inspections are performed within 15 days of a loan entering special servicing.
• Asset managers develop business plans, depending on UPB and other factors, typically within 45 days of the loan assignment.
• The asset summary reviews for nonperforming loans are comprehensive, in our view, and include loan data, sponsor data, a collateral description, and key developments.
• The asset resolution system stores all workout plans which include scenario analysis and their net present values.
• Recommended resolution presented to management or client for approval based on delegated authority levels.
• A dedicated valuations team with certified appraisers review all valuations to establish an as-is and as-stabilized value.
• Maintains an approved vendor list to perform inspections, appraisals and provide broker opinions of value.
• CLS pursues a dual-track model in which it continues efforts to resolve the default with the borrower while the company enforces legal remedies.

The company utilizes multiple options to resolve special servicing assets. Asset managers utilize the CSAM system to track loan status and model various options to determine the optimal resolution based on net present value. A client approval system is in place to provide a secure portal to communicate approval requests to investors.

CLS completed 678 resolutions in 2022 compared to 809 in 2021. Just over half of the resolutions were loan restructures, which was consistent with 2021. The percentage of resolutions that were full payoff increased in 2022 compared to the prior year.

Table 7

Special servicing portfolio--loan resolutions
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Percentage of total resolutions during the period
Percentage of resolutions that are modifications/restructures (%)	55.75	53.03	32.91
Percentage of resolutions that are short sale, DPO, note sale (%)	1.03	0.49	0.51
Percentage of resolutions that are full payoff (%)	18.88	9.89	30.00
Percentage of resolutions that are deed-in-lieu (%)	0.00	0.00	0.00
Percent of resolutions that are foreclosure sale (%)	3.10	0.25	0.51
Percent of resolutions that are other (%)	21.24	36.34	36.07
Total	100.00	100.00	100.00
*Total may not add to 100% due to rounding
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Total resolutions during the period
Resolutions that are modification/restructure	378	429	385
Resolutions that are short sale, DPO, note sale	7	4	6
Resolutions that are full payoff	128	80	351
Resolutions that are deed-in-lieu	0	0	0
Resolutions that are foreclosure sale	21	2	6
Resolutions that are other	144	294	422
Total	678	809	1170
DPO-Discounted payoff

While foreclosure activity was limited during 2020 and 2021 (largely due to pandemic related restrictions), it resumed in 2022 with modest volume. CLS effectively manages foreclosure and bankruptcy proceedings with comprehensive oversight of foreclosure and bankruptcy cases. A dedicated default coordinator handles default administration with support from the asset manager and internal counsel. The coordinator monitors the case timelines and communicates with each of the attorneys. Key default practices include the following:

• CLS uses its proprietary DTS platform to assign counsel and track foreclosure and bankruptcy cases for commercial loans.
• An automated system identifies new bankruptcy cases and changes to existing cases.
• Properties that receive a high environmental risk rating undergo a Phase II environmental site assessment as part of the foreclosure process.
• Attorney performance is monitored by a formal attorney vendor scorecard.
• Outside bankruptcy counsel prepares bankruptcy notices which are reviewed before filing.
• The asset manager and REO asset manager collaborate to develop the REO strategy as the asset acquisition date approaches.

REO management and dispositions

CLS demonstrates effective REO management and sales oversight. Most of the small-balance commercial properties in the servicing portfolio do not generate enough cash flow to warrant property management; however, CLS has internal resources and procedures for property management oversight. Notable aspects include the following:

• CLS has one REO asset manager responsible for the disposition of small balance commercial assets. The REO caseload of 28 is currently manageable considering the generally less complex nature of the collateral.
• Within 45 days after acquiring an asset, the REO asset manager develops a business plan, taking into consideration local market conditions and property-specific information.
• It uses an industry-recognized system to manage its REO inventory providing key milestone, task tracking and document management functionality.
• It primarily uses the retail disposition channel with auction for aging listings in certain scenarios.
• Property inspections and a new valuation are performed within 60 days of taking title.
• REO asset managers develop revised business plans for properties listed longer than 90 days, and properties on the market for more then 180 days are reviewed with management for alternative disposition strategies.
• CLS completed 16 asset sales during 2022 with a gross sales-to-market-value average of 119% for the second half of 2022 compared to 125% for the same period in 2021.
• It averaged 251 days to sell an asset following the foreclosure sale.
• CLS monitors broker performance using a scorecard to measure key performance indicators for each transaction.

Table 8

Special servicing portfolio--real estate-owned sales
	2022	2021	2020
Number of REO asset dispositions	16	5	62

REO accounting and reporting

CLS' controls and procedures for REO property-level oversight are sound, given the limited complexity of its existing collateral, i.e. typically single or small multi-tenant properties. Furthermore:

• Property managers submit monthly financial packages that are reviewed by internal accounting staff to ensure accounting practices are sound and meet internal audit requirements.
• The REO asset manager reviews monthly plans to determine if operating results are in line with business plan strategies.
• When necessary, CLS' internal accounting staff works with the REO managers to ensure accurate REO accounting and downstream reporting.
• All property-level invoices are reviewed by the asset manager and then escalated to management for final approval.
• Invoices are submitted and paid through an internal invoice management system.

Legal department

CLS' legal department and oversight of outside counsel for commercial small-balance special servicing operations is described in the subsequent loan administration commercial special servicing section.

Loan Administration--Commercial Special Servicing

The loan administration subranking is AVERAGE for commercial special servicing.

The AVERAGE subranking reflects CLS' ability to resolve defaulted loans with an experienced asset management team. We note that the company itself has a limited track record of workout and dispositions for complex special servicing commercial real estate loans, such as those typically in CMBS transactions, or with REO management of such properties.

CLS is responsible for default management and special servicing of its loan servicing portfolio. Its servicing portfolio consists of loans serviced for BAM investments which is comprised of mostly small-balance loans. Because of this, most special servicing loan resolutions have involved non-performing small-balance loans/assets. Although we note that the overall commercial loan servicing portfolio is growing as it boarded 149 loans in 2022 representing 45% growth in loan count year over year, and an increasing number of these newer vintage loans are secured by larger and more complex assets.

The CLS has eight asset managers (excluding those assigned to its legacy small-balance portfolio) that handle default workouts and primary servicing functions for the larger assets. These employees have a workout experience managing commercial real estate assets. In addition to the commercial special servicing loans (table 9), some asset managers also handle certain small-balance commercial portfolios.

As of Dec. 31, 2022, CLS managed a large-balance special servicing portfolio of eight loans with an aggregate UPB of $20.7 million. The number of loans in special servicing is lower compared to 2021 (i.e., the time of our prior review) as the company resolved pandemic-era defaults. Recent resolution activity was largely on office, retail, and multi-family property types with an average UPB of $4.8 million for loans resolved during 2022. We note that CLS has a limited track record of workout and dispositions for complex special servicing commercial real estate loans, such as those typically in CMBS transactions, or with REO management of such properties.

Table 9

Special servicing portfolio
	Dec. 31, 2022			Dec. 31, 2021			Dec. 31, 2020			Dec. 31, 2019			Dec. 31, 2018
	UPB (mil. $)	No.	Avg. age (i)	UPB (mil. $)	No.	Avg. age (i)	UPB (mil. $)	No.	Avg. age (i)	UPB (mil. $)	No.	Avg. age (i)	UPB (mil. $)	No.	Avg. age (i)
Active inventory
Loans	20.7	8	15.5	45.3	10	15.0	67.2	21	27.4	23.3	28	N/A	45.6	71	N/A
Real estate owned	0.0	0	0.0	0.0	0	0.0	1.1	1	27.3	2.4	6	N/A	16.0	24	N/A
Total	20.7	8	15.5	45.3	10	15.0	68.3	22	27.4	25.7	34	N/A	61.7	95	N/A
Totals may not add due to rounding. (i)Avg. age reflects the time in months from the date the loan first became specially serviced to the reporting date. UPB--Unpaid principal balance. N/A--Not applicable (Unable to obtain information through servicer-provided materials).

Loan recovery and foreclosure management

The loan recovery and foreclosure management procedures are effective, in our view, considering the portfolio's size. The team includes eight loan asset managers who have previous experience with servicing small-balance, commercial, and CMBS loans. Management indicated that loan asset managers typically handle approximately 25-30 loans, which, given the collateral's nature, is manageable, in our view. We considered the following in our analysis:

• Borrowers are contacted proactively to determine the cause of issues and gather relevant information.
• Business plans are written pursuant to specific requirements within client contracts.
• Business plans are completed and approved within 45 days of transfer.
• Plans are updated quarterly, at a minimum, and assets are continually monitored by the asset manager.
• An asset management system provides the asset manager with a recommended optimal course of action (using net present value analysis) to resolve defaulted loans.
• CLS has a team of certified appraisers with MAI professional designation to review all valuations to establish an as-is and as-stabilized value.
• A dual-path approach to resolving the default through negotiations with the borrower, to find a foreclosure alternative while also preparing the asset for foreclosure.
• Asset managers will engage legal counsel for consultation as necessary.

CLS completed 12 resolutions in 2022 compared to 24 in 2021 (see table 10) with the lower number largely reflecting fewer non-performing loans in the portfolio. In 2022, it achieved full payoffs for 11 of the 12 resolutions. Management notes CLS is continually utilizing every option available for resolution as evidenced during the COVID-19 pandemic.

Table 10

Total special servicing portfolio--loan resolutions
	2022			2021			2020			2019			2018
	UPB (mil. $)	No.	Avg. age(i)	UPB (mil. $)	No.	Avg. age(i)	UPB (mil. $)	No.	Avg. age(i)	UPB (mil. $)	No.	Avg. age(i)	UPB (mil. $)	No.	Avg. age(i)
Resolutions
Loans	89.8	21	34.1	102.6	23	25.5	40.1	32	48.0	1.9	6	N/A	1.9	3	N/A
Foreclosed loans	1.2	1	24.9	0.0	1	9.2	6.9	63	60.6	4.9	101	N/A	4.9	126	N/A
Total	91.0	22	33.6	102.6	24	24.8	47.0	95	56.3	6.7	107	N/A	6.8	129	N/A
Resolution breakdown
Returned to master	0.0	0	n/a	0.0	0	n/a	0.0	0	n/a	0.4	1	N/A	0.0	N/A	N/A
Full payoffs	89.8	21	34.1	102.6	23	25.5	34.9	23	25.6	0.0	1	N/A	1.5	2	N/A
DPO or note sale	0.0	0	n/a	0.0	n/a	0.0	5.2	9	105.4	1.5	4	N/A	0.3	1	N/A
Foreclosed loans	1.2	1	24.9	0.0	1	9.2	6.9	63	60.6	4.9	101	N/A	4.9	126	N/A
Total/average	91.0	22	33.6	102.6	24	24.8	47.0	95	56.3	6.7	107	N/A	6.8	129	N/A
Totals may not add due to rounding. (i)Avg. age reflects the time in months from the date the loan first became specially serviced to the reporting date. UPB--Unpaid principal balance. DPO--Discounted payoff. NA--Not applicable (Unable to obtain information through servicer-provided materials).

REO management and dispositions

CLS maintains policies and procedures and experienced staff to manage commercial REO assets. REO management practices we considered in our analysis include the following:

• Before the foreclosure is finalized, the loan asset manager communicates directly with the dedicated REO asset manager to facilitate the asset's transition.
• An REO asset plan is developed within 45 days of the foreclosure date for each REO property.
• The business plans include property descriptions, necessary improvements, comparable sales, and pricing recommendations.
• All business plans require senior management's approval and, ultimately, the client's approval.
• Due to the low number of properties with active property managers, CLS does not have a formal on-site audit program. On-site audits are a best practice and common among special servicers we rank that have a larger number of REO assets with active property managers.
• REO asset managers are responsible for monitoring property managers and ultimately make recommendations regarding any adjustments for a particular property manager.

As of Dec. 31, 2022, there are no REO assets in the large balance commercial portfolio. One REO asset manager is responsible for overseeing the REO assets within the commercial portfolio along with disposition of small balance commercial REO assets. We believe CLS maintains experienced staff to manage current inventory levels.

Table 11

Total special servicing portfolio--real estate-owned sales
	2022			2021			2020			2019			2018
	Amount (mil. $)	No.	Avg. REO hold period (mos.)	Amount (mil. $)	No.	Avg. REO hold period (mos.)	Amount (mil. $)	No.	Avg. REO hold period (mos.)	Amount (mil. $)	No.	Avg. REO hold period (mos.)	Amount (mil. $)	No.	Avg. REO hold period (mos.)
Estimated market value	0.2	1	2.0	1.1	1	19.6	0.0	0	n/a	0.0	0	n/a	0.0	0	n/a
Gross sales proceeds	0.2	--	--	0.9	--	--	0.0	--	--	0.0	--	--	0.0	--	--
Gross sales proceeds/market value (%)	104.7	--	--	83.3	--	--	0.0	--	--	0.0	--	--	0.0	--	--
(i) Data not available for 2018 and 2019

REO accounting and reporting

CLS maintains satisfactory controls and procedures for REO property-level oversight, given the limited complexity of its existing collateral. Key aspects include the following:

• Property managers submit monthly financial packages that are reviewed by internal accounting staff to ensure accounting practices are sound and meet internal audit requirements.
• REO managers review monthly plans to determine if operating results are in line with business plan strategies.
• When necessary, CLS' internal accounting staff works with the REO managers to ensure accurate REO accounting and downstream reporting.
• All property-level invoices are reviewed by REO managers and then escalated to management for final approval.
• Invoices are submitted and paid through an internal invoice management system.

Subcontracting management

The vendor management team evaluates and manages all third-party vendors and subcontractors that perform services associated with foreclosure management, as well as property management and disposition (e.g., property managers, brokers, appraisers, and environmental firms). Key oversight activities include:

• Managing/monitoring contracts (including the request for proposal process), negotiating terms, tracking for expiration/renewal, and obtaining internal senior management approvals.
• REO asset managers use an approved third-party vendor list to engage real estate brokers for marketing REO assets. The broker selection process includes evaluating proposals from multiple brokers based on experience with the asset type, prior performance, and proximity to the asset.
• Soliciting bids from multiple appraisers before selecting an appraiser.
• Reviews of all third-party appraisals by a valuation team.
• Monitoring performance through a comprehensive scorecard that emphasizes the importance of timeliness, quality, and conformity with contract terms.
• No affiliates providing third-party services related to servicing obligations, avoiding any potential conflicts of interest.
• Oversight of property management companies, including monthly reporting of rent rolls, bankruptcy statements, operating accounts, and bank statements.

Legal department

Four in-house attorneys provide preliminary reviews of legal and bankruptcy matters and assist in oversight of outside counsel for the special servicing operations. The company maintains an approved list of attorneys. In addition, an in-house legal staff provides support for the default administration and asset manager teams. A default management associate monitors critical litigation timelines, court filings, and attorney oversight in coordination with the assigned asset manager. Performance scorecards are completed monthly for all third-party attorneys. REO asset managers provide additional oversight by approving all legal invoices before payment.

Financial Position

The financial position is SUFFICIENT.

Related Research

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• Various Ranking Actions On Community Loan Servicing LLC Following Sale Of Residential Mortgage Loan Portfolio, July 21, 2022
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• Servicer Evaluation: Community Loan Servicing LLC -- Commercial And Small-Balance Commercial , July 26, 2021
• Servicer Evaluation: Community Loan Servicing LLC -- Residential, July 26, 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

Secondary Contact:	Benjamin Griffis, Englewood + 1 (303) 721 4672; benjamin.griffis@spglobal.com
Servicer Analyst:	Jason Riche, Dallas + 1 (214) 468 3495; jason.riche@spglobal.com
Analytical Manager, Servicer Evaluations:	Robert J Radziul, New York + 1 (212) 438 1051; robert.radziul@spglobal.com