Standard & Poor's has unveiled prototypes for its new benchmarking tool and has been collecting proprietary performance data from the residential mortgage servicing industry through the use of its Servicer Evaluation Analytical Model.
"Starting four years ago, we developed a questionnaire and built a database," said Michael Gutierrez, a director and head of S&P's Structured Finance Servicer Evaluations Group.
The team gradually added new sections to capture information on hazard insurance, regulatory compliance, litigation and offshore outsourcing.
As it begins the final phase of compiling market feedback, S&P has posted two studies on its Web site. An industry benchmarking study compares a designated group of servicers in an industry segment, such as conforming, nonprime or subordinate lien. It presents metrics such as call center performance, delinquency management and loss mitigation. The other study contrasts a hypothetical servicer against four peer groups according to staffing, call center performance indicators, collections, loss mitigation and foreclosure metrics.
Glossary of definitions
S&P has also posted a glossary of SEAM definitions on the site for the data fields used in its questionnaire. It hopes to obtain feedback on the terms themselves. Are they specific enough? Could they be better clarified?
"This study is intriguing because the biggest concerns are normalizing the data and achieving consistency in defining the measures," said Shane Ross, senior vice president of account management at subprime servicer Litton Loan Servicing. "We need an independent organization to state the calculations, which may differ from internal ones."
Consider the voice response unit capture rate. When callers dial a number with an automated response to their queries, some callers will hang up satisfied. Does that constitute abandonment? S&P would label it a "resolution."
"People need to know they are getting apples to apples," said Richard Koch, a director at S&P's Structured Finance Servicer Evaluation Group. "Benchmarking is only as good as the definitions themselves."
The surveys will cover
over 100 companies.
"Basically, we will address every residential servicer that is active in the securitization industry, and beyond that, a good number of sub-servicers who act on a third-party fee basis." Gutierrez said.
Whoever is in charge of gathering the information must have a clear handle on how each peer group should look.
"S&P brings credibility," said Richard Cimino, president of loan servicing at New Century Mortgage, a non-prime servicer. "You must be represented alongside your true peers, or else the results become convoluted and confused."
Investors and issuers are also looking for consistency among groups and definitions.
"They want to drill down deeper, to understand what makes certain servicers stronger," Koch said.
Specific components and activities, such as loss mitigation and cure rates, indicate the volume of loans a servicer can bring back from a non-performing state and the ability to reduce loss frequencies.
Looking to provide
transparency
The SEAM evaluations provide a more quantitative, and less qualitative, platform, enabling S&P to reach out to servicers. The company hopes to add transparency to the ranking process by offering clearer comparisons and recommendations for improvement.
"Before, without that detail in the metrics, servicers did not always understand what they needed to do to reach the next level," Gutierrez said.
He noted that a few years ago call center metrics were declining. Investigations revealed that servicers had not staffed up sufficiently since they believed the refi boom was soon to end.
Do servicers welcome such guidance? Ross described how his bank benefited from it.
Litton Loan Servicing discovered that it was strong, by loss frequency and loss severity criteria, but saw room for improvement in customer service and collection hold times. A "middle of the pack" position for timelines was due not to poor performance, but "a different strategy around when to start a foreclosure action, or how much time to give borrowers," Ross said. "We realized we preferred our balanced approach."
Cimino highlighted the cost of servicing loans. It is more expensive to service non-prime loans, he said, so it is key to be effective at the least cost by minimizing or avoiding time in delinquency.
S&P plans to start issuing reports to clients on a fee basis at the start of the third quarter. In an effort to forge consensus on the definitions, S&P continues to encourage all constituencies to provide commentary, soliciting responses through e-mail blasts, Web site reviews and conferences.
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