- OVERVIEW
-- We affirmed our ABOVE AVERAGE ranking on Wells Fargo Home Equity as a residential mortgage subordinate-lien servicer.
-- The company completed its portfolio conversion of all lines and loans from the former Wachovia Bank N.A.'s system platform.
-- Concurrently, the company standardized all systems and processing functions across the servicing operation.
-- The company continues to focus on ensuring that its operations are compliant with the regulatory requirements affecting the servicing industry.
Standard & Poor's Ratings Services today affirmed its ABOVE AVERAGE ranking on Wells Fargo Home Equity (WFHE) as a residential mortgage subordinate-lien servicer. The outlook is stable.
KEY RANKING FACTORS
Strengths:
-- The company has successfully consolidated and standardized its systems following Wells Fargo & Co.'s acquisition of Wachovia Bank N.A., resulting in a more uniform approach to servicing its loan portfolio.
-- WFHE augmented its technology environment in customer service, loss mitigation, and other areas to improve the customer experience.
-- The experience levels of management and staff are good, in our opinion.
-- The dual auditing mechanisms continue to provide reliable oversight over the operation, and the planned addition of another level of control will add yet another monitoring mechanism.
-- The servicer improved its training program by adding pertinent topics affecting the industry.
Weaknesses:
-- There was a repeat finding in a default audit that still requires remediation.
-- It remains to be seen how the regulatory orders affecting servicing practices issued earlier by the Office of the Controller of the Currency and through the recently announced attorney general's settlement with various large servicers will affect the company, and we will monitor how the company complies with and implements the actions these bodies require.
WFHE services Wells Fargo Bank's residential subordinate-lien portfolio, which consists of home equity lines of credit (HELOC) and closed-end second-lien mortgages. WFHE was formed just before the merger between Wells Fargo & Co.and Norwest Corp. in November 1998. Initially, other areas/businesses of the parent supported subordinate-lien servicing. This changed in late 2001 when WFHE gradually began to assume direct servicing responsibilities for these assets. The parent organization, Wells Fargo & Co.,acquired Wachovia in 2008.
We affirmed our subrankings at ABOVE AVERAGE for both management and organization and loan administration. We consider WFHE's financial position to be Sufficient.
In mid 2011, the company, in our opinion, successfully completed the conversion of the remaining loan and line accounts from the former Wachovia into its existing servicing operations. There is now a common system used by all employees along with consolidating other previously separate functions performed by portfolio type (i.e., WFHE versus Wachovia). Additionally, WFHE implemented a unified interactive voice response (IVR) system and Web site that has enhanced efficiencies and reduced redundancies associated with operating two distinct technology applications. Finally, the company adopted standardized performance reporting statistics, which we view as thorough, that better assist management in monitoring both the portfolio and staff metrics.
Importantly, additional training addressing single point of contact was introduced in 2011 that provides, in our opinion, a solid learning foundation for its employees. Dual auditing mechanisms remain in effect, and, to further strengthen internal controls, WFHE added a separate team to review vendor metrics as compared against service level agreements, and this same area now performs testing on accuracy of transactions affecting high-risk areas. We believe the company further improved its systems environment by adding voice over the internet protocol and rolling out a common customer service application used by Wells Fargo Bank.
Standard & Poor's Servicer Evaluation Analytical Methodology (SEAM) metrics generally indicate that the company is a capable performer compared with similar peers. The company's newly formed fraud risk management committee represents, in our opinion, a more structured routine for discussing and trending fraud issues. Based on a SEAM comparison, WFHE's customer service call center metrics and turnover rates are comparable with its peer group. We consider WFHE's default experience levels to be quite good based on SEAM data, and the collection call center metrics are somewhat better than other similar servicers we follow. The addition of a new dedicated group that makes a final attempt at completing a possible workout while a loan is in foreclosure represents what we believe is an appropriately proactive effort designed to cure the account and mitigate potential future losses. Customers now also have the ability to ascertain the status of their modification online. As an offsetting factor, there was a repeat audit finding pertaining to the default area, and management is in the process of implementing a corrective action plan to remediate the issue.
OUTLOOK
The outlook is stable. Now that WFHE has consolidated its portfolio, it intends to concentrate on complying with the various regulatory orders affecting the industry, specifically the OCC consent order and recent attorney general's settlement, through increased training and a focus on ensuring processes are adequate to maintain a satisfactory control environment.
Management also indicated they will continue to assess and try to improve upon various performance metrics. We expect WFHE to remain a competitive player in the residential subordinate-lien marketplace.
RELATED CRITERIA AND RESEARCH
-- Bulletin: No Servicer Ranking Actions Will Follow $25 Billion AG Settlement, published Feb. 15, 2012.
-- Revised Criteria For Including RMBS, CMBS, And ABS Servicers On Standard & Poor's Select Servicer List, published April 16, 2009.
-- Servicer Evaluation Ranking Criteria: U.S., published Sept. 21, 2004.
-- Select Servicer List.
SOURCE Reuters