Citing improvements in the company’s internal controls and other factors, Fitch Ratings upgraded two of Fay Servicing’s residential mortgage servicer ratings.
Fitch said Tuesday that it is upgrading Fay Servicing’s residential primary servicer rating for subprime product from “RPS3” to “RPS3+” and its residential special servicer rating from “RSS3” to “RSS3+”.
Fitch rates residential mortgage primary, master, and special servicers on a scale of 1 to 5, with 1 being the highest rating. Within some of these rating levels, Fitch further differentiates ratings by plus (+) and minus (-) as well as the flat rating, the ratings agency said in its release.
Additionally, Fitch said that as a part of the upgrade, the outlook for each rating has been revised from “positive” to “stable.”
According to Fitch, the upgrades are based on improvements to Fay's internal control environment, the company’s experienced management and staff, its “high-touch” servicing model, and the company’s integrated servicing technology.
Fitch said that Fay “effectively uses outsource vendors for non-core servicing functions including tax and insurance processing and information technology support,” which allows allow the company to focus its resources and attention on managing its borrower contact and resolving delinquent and defaulted loans.
According to Fitch, Fay has continued to build its internal control environment.
Fitch said that since its last review of Fay, the company hired an executive vice president of internal audit that has over 30 years of industry experience, and re-aligned the internal audit function to report independently to the Fay Financial's board of directors.
Previously, internal audit reported to the company's general counsel and chief compliance officer, Fitch said.
In its report, Fitch said that it views this change positively as it is expected to provide more independence to the internal audit function.
Fitch also cited the strength of Fay’s business model.
According to Fitch, Fay utilizes a 'three lines of defense' structure similar to large bank and nonbank servicers that are also rated by Fitch.
Fitch said that the three lines of defense include quality assurance performed within the operation, quality control performed within the legal and compliance department, and the internal audit function.
According to Fitch, Fay’s internal audit is outsourced to a national professional services firm that provides internal audit, regulatory compliance, fair lending, and loan review services, and to an independent consultant with extensive industry experience.
Fitch also noted Fay’s “high-touch” servicing model as a positive.
Fitch said that Fay uses experienced account managers who act as the single point of contact with borrowers. At Fay, every loan whether current or delinquent has an assigned account manager who handles all of the customer service, collections and loss mitigation interaction with the borrowers for their assigned pool of loans, Fitch said.