The higher level of activity in the servicing market, as a result of mergers, acquisitions, transfer of servicing rights, and bankruptcies, has increased the focus on the servicers and the effect they have on the performance of structured transactions. The potential increase of defaults in portfolios, due to general economic trends, has caused all market participants to agree on the elevated importance of this role.
In 1999, Fitch introduced ratings for residential mortgage servicers that included primary, master and special servicer ratings. Fitch has been rating commercial loan servicers since 1992 and has recently announced the development of servicer assessments for a variety of Asset Backed products. This article discloses the most significant measures used in the evaluation of servicer's abilities in default loan management.
The analysis of a servicer's ability to manage loan defaults involves a close examination of three key variables: Servicer performance history by product type; current operational status and efficiencies; and stress testing for future stable execution.
Each of these three, along with how and to what extent they affect the servicer score, is further discussed below.
Servicer performance history by product type
As performance benchmarks analyzed may differ from servicer to servicer, therefore, comparing performance statistics is a difficult, but not impossible, task. In order to make the assessment relevant, as well as fair to the servicer, individual portfolio features and history …
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