Residential mortgage servicer ranking

S&P Global Ratings' rankings on Newrez LLC are ABOVE AVERAGE as a residential mortgage loan primary and special servicer. On Sept. 15, 2023, we affirmed the rankings (see "Newrez LLC ABOVE AVERAGE Residential Mortgage Loan Primary And Special Servicer Rankings Affirmed"). The ranking outlook is stable for each ranking.

Our rankings reflect Newrez's:

• Senior leadership team's industry experience including managing performing and non-performing loans, although the average experience is lower than peers';
• Successful track record in boarding large bulk servicing portfolios and integrating servicing operations;
• Comprehensive internal control framework comprised of three lines of defense to monitor and detect risk;
• Continued commitment to its range of recruiting strategies, its sound new-hire training program, and staff development initiatives;
• Systems and technology that are effective along with enhancements to support its growing portfolio;
• Efficient and well-controlled loan administration practices with performance metrics that are generally comparable to peer averages, except for certain lagging call center metrics;
• Industry experience levels for some of the default management team that are lower relative to peer averages;
• Diverse outreach strategies to engage borrowers and resolve non-performing loans; and
• Loss mitigation strategies and technology (including self-service capabilities) that remove some process friction and potentially provide improved execution rates and performance.

Since our prior review (see "Servicer Evaluation: Shellpoint Mortgage Servicing," published Feb. 15, 2022), the following changes and/or developments have occurred:

• Loans are being migrated in multiple phases from the servicing system of its sister company, Caliber Home Loan Inc. (Caliber), to its own servicing system. At the same time, Newrez began transitioning former Caliber staff to its servicing platform.
• Several key management and organizational changes have been made including many that were filled by promoting existing management, such as the chief compliance officer to the newly created head of servicing operations. The executive vice president (EVP) of performing servicing division and the EVP of servicing operations left the company, and those roles were also filled by internal promotions.
• A new managing director of business development was added in July 2022.
• Its investor portal was enhanced by adding, among other things, a modern dashboard reporting interface allowing investors to build customized reports.
• A new universal call agent role was created to manage customer service and early-stage collections calls.
• A dialer team was established to manage outbound contact strategies and staff resources.
• The production of payoff statements was automated in early 2022, and they were made available online and on its mobile application.
• A two-way messaging system was implemented via its borrower website.
• SBO.NET was implemented to facilitate investor reporting for certain investor portfolios.
• Newrez transitioned to a single real-estate-owned asset management platform and retired the other platform.

Our ranking outlook is stable for each ranking. We believe Newrez will continue to perform as an overall effective residential mortgage loan primary and special servicer. Its servicing portfolio has continued to grow meaningfully over the last several years, with a company acquisition and associated servicing portfolio largely contributing the most to recent growth. Although acquisitions of this size typically involve inherent risk, we note that the company acquired and integrated the operations of certain Ditech Holding Corp. assets, beginning in 2019. Our outlook also factors in the company's measured and phased integration approach along with the experienced management team's continued strategic investment in infrastructure and technology to increase efficiencies and manage its growth. Additionally, we expect Newrez, through its Shellpoint special servicing division, to maintain its strategies and capabilities to effectively service its special servicing portfolio.

In addition to conducting an on-site meeting with servicing management, our review includes current and historical Servicer Evaluation Analytical Methodology data through June 30, 2023, as well as other supporting documentation provided by the company.

Profile

Newrez is a subsidiary of Shellpoint Partners LLC. In 2018, Rithm Capital Corp. (Rithm; fka New Residential Investment Corp.) acquired Shellpoint Partners LLC and all subsidiaries, including Newrez. Newrez is a non-bank lender and a servicer of loans that it originations, as well as servicing performing, re-performing (RPL), and nonperforming loans (NPLs) for its third-party servicing clients through its Shellpoint Mortgage Servicing division (Shellpoint). It is an approved Freddie Mac, Fannie Mae, and Ginnie Mae servicer. Newrez has four core servicing sites, with its servicing headquarters in Greenville, S.C., Houston, Dallas, and Tempe, Ariz.

Newrez has a total servicing portfolio of approximately 1.9 million loans with an unpaid principal balance (UPB) of $396 billion as of June 30, 2023. The primary portfolio growth drivers are Newrez originations, bulk transfers of Rithm mortgage servicing rights, and growth in third-party business. Our residential primary and special servicer rankings focus on its processes and controls for its residential prime and special servicing portfolios (see table 1).

On Aug. 23, 2021, Rithm completed its acquisition of Caliber, which also included Caliber's servicing business. During 2022, Newrez began migrating the servicing portfolio to its servicing platform while also consolidating staff and operations over multiple phases. Management indicated it expects to complete the transfer before the end of 2023. (See "Servicer Evaluation: Caliber Home Loans Inc.," published March 22, 2021.)

Table 1

The servicing portfolio is geographically distributed across multiple states, which largely limits the concentration risk (see table 2).

Table 2

Management And Organization

The management and organization subrankings are ABOVE AVERAGE for residential mortgage loan primary and special servicing.

Organizational structure, staff, and turnover

Newrez's servicing operations are functionally organized with senior servicing business unit leaders reporting to the head of servicing operations, who reports to the president and head of the servicing company. It uses shared services for internal controls and other key support functions, such as compliance, internal audit, and IT. We believe the organizational structure effectively addresses operational needs for the size of the servicing portfolio.

Since our prior review, it made several key management and organizational changes. It created the head of servicing operations role and promoted the former chief compliance officer to that position. The head of servicing operations is now responsible for core servicing functions. It flattened the management structure and promoted internally to replace the EVP of performing servicing division and the EVP of servicing operations that left the company. It also added a new managing director of business development in July 2022.

The management team and staff exhibit solid levels of industry experience. Company tenure levels are satisfactory and largely similar to our last review, which reflects a company that is expanding its management depth. The overall management turnover rate is low and has remained stable relative to our prior review. Furthermore:

• Senior management averages 17 years of industry experience and 10 years of tenure with the company, both of which are lower than its primary and special servicer peer averages.
• Middle managers have an average of six years of industry experience and eight years of company tenure, which are lower the peer averages.
• Overall management turnover is 7%.
• The overall staff turnover rate of 16% is manageable, has trended lower (i.e., improved) since our prior review, and is generally comparable to the primary and special servicing averages.

Newrez has sufficient resources for its workload as measured by its loan-to-employee ratio (LPE) in comparison to its peer average. It's LPE ratio has trended lower as overall staff count has increased significantly (42%) since June 30, 2022, in part, as the company absorbed former Caliber employees to manage the Caliber portfolios that it migrated to its platform beginning in 2022.

Training

Newrez has a sound training program to acclimate new hires to their roles and promote the continuing development of existing employees. The company also has an effective approach to recruiting new staff, which is critical for large servicing organizations. Among other things, recruiters leverage relationships with local colleges to tap undergraduate and post-graduate programs as well as sponsored events and job fairs to accelerate hiring to meet staffing needs. Other training factors we considered in our analysis include that:

• Trainers sit in all core servicing sites, with dedicated trainers for larger departments, including its customer-facing areas.
• A learning management system tracks training course completion.
• The training program for new customer-facing employees (customer service/collections and single point of contact roles) is 240 hours, which is satisfactory.
• New hires are required to pass a knowledge assessment demonstrating proficiency before completing training.
• All employees are required to complete annual regulatory compliance training.
• An entry-level rotational program geared to college graduates provides hands-on training across core servicing functions.
• Newrez implemented an internship program in 2021 for college students that provides industry (servicing) experience, which can be used as a recruitment tool.
• The company provides leadership training for new managers.
• There is a management training program for new and experienced managers.

Systems and technology

Newrez uses a combination of vendor-based and proprietary systems, which effectively support its primary and special servicing operations. It maintains shared services resources to manage its systems and infrastructure, including application development and maintenance. In addition to corporate shared services, the company has a long-standing shared services agreement in place with Resurgent Capital Services that it has scaled down to mostly contractor services.

Servicing system applications

Newrez's technology infrastructure's systems and support include:

• Servicing Director is its servicing system, which management indicated is load-tested to handle a larger servicing portfolio.
• A customer relationship management system that it developed for its customer facing staff to manage borrower contact (e.g., calls). This is the main user interface provides agent with access to all key loan information in one system.
• Loss Mitigation System (LMS) is a proprietary system used for cash flow-based loss mitigation. It supports rule-based modifications, loss mitigation application requirements, and net present value calculation (see the Loss Mitigation section).
• A borrower website that provides the ability to self-service for common requests, such as access to loan information, payment history, and correspondence and the ability to schedule payments and request payoff quotes.
• A mobile application with similar functionality to its website.
• An industry-recognized telephony solution for its inbound call routing, interactive voice response (IVR) system, and collections dialer applications;
• A foreclosure and bankruptcy tracking system that provides good capabilities to manage default processes and timelines;
• A low-code application development platform.
• A vendor provided web-based document management (imaging) system with workflow capabilities.

Business continuity and disaster recovery

Newrez maintains documented plans to manage disaster recovery and business continuity events. The business continuity plan is refreshed at least annually. Furthermore:

• Core servicing functions are redundant across its multiple servicing sites, which helps mitigate business disruption risk.
• It uses data replication between its primary and backup data centers and disc to tape backups for data recovery.
• The data centers are in separate states, and the tape backups are stored offsite.
• It's recovery time and recovery point objectives are satisfactory.
• Disaster recovery tests are performed annually. The most recent was a full fail-over test completed in October 2022. The company indicated there were no issues or findings.
• We also recognize that even though two of the servicing sites are in hurricane-prone areas, the company has a track record of no operational or data facility issues.

Newrez maintains systems and protocols along with an incident response plan to monitor, assess, and address threats. Key factors we considered include:

• A centralized security operations team to monitor and address threats.
• A security information and event management application to identify, triage, and manage threats;
• Intrusion detection mechanisms to monitor network traffic;
• Firewalls, web filters, and anti-malware software;
• Semi-annual external network penetration testing performed by a third party;
• Annual information security training for all employees;
• Phishing email simulation exercises for employees on a quarterly basis, a practice we commonly observe among similarly ranked servicers.
• Software patching protocols are based on criticality;
• Data protection and loss prevention systems; and
• That Newrez completed a cyber incident response exercise to test its response to a cybersecurity event.

Internal controls

The company has a sound internal control framework that includes multiple lines of monitoring and testing to detect risk. Most activities are independent of the servicing operation, reporting to either the chief compliance officer or, in the internal audit department's case, the board of directors. The company utilizes a single system to monitor all identified issues and corrective actions, which provides enterprise-wide visibility to open issues and corrective actions.

Policies and procedures

Newrez provides sound administration and governance of content standards, as well as version control of its policies and procedures (P&Ps). The P&P library is accessible to staff through the company intranet. The P&Ps are reviewed, at minimum, on an annual basis. A workflow tool is used to facilitate and track the certification process.

Quality assurance (QA) and call monitoring

Newrez maintains a formal QA program comprised of in-line monitoring of key compliance indicators (KCIs) and early detection testing for compliance with procedures and regulatory and investor requirements. It uses exception-based dashboards that present KCIs along with a proprietary audit tool to facilitate and track QA testing. All exceptions are reviewed by a separate group. There are weekly calibration meetings with business units to address issues discovered from the normal course of oversight. There are also quality assurance teams embedded within the business units performing in-line reviews and quality monitoring.

Newrez uses a voice analytics technology to analyze all calls for compliance and operational purposes, including ensuring agents provide required disclosures, identifying potential escalation points, and optimizing call-handling practices. All flagged exceptions are reviewed. A separate team performs traditional call monitoring for phone agents, incorporating intelligence provided by the voice analytics software. Call center supervisors also monitor a minimum of five calls per agent each month. Combined, they performs traditional complete call monitoring on a minimum of seven calls monthly for each agent.

Compliance and quality control

The compliance management system is organized to monitor regulatory and investor compliance as well as its change-management process. This includes a quality control team to test key procedures across all of servicing to ensure they are operating as expected and in compliance with regulatory requirements.

Newrez has a capable framework to identify potential changes, disseminate changes to applicable business areas, and monitor updates and corresponding control activities. Key components that we considered in our review include:

• Systems to identify regulatory and investor changes and disseminate change information affected business units;
• A dedicated change-management team that tracks changes in a database, including process ownership, implementation process milestones, and reporting;
• A QA team to monitor the sustainability of recently implemented changes related to high-risk practices;
• Comprehensive quality control testing that occurs on a risk-based frequency, with high-risk processes tested monthly and others quarterly at minimum;
• An industry-recognized audit system that is used for quality control sampling, test scripts, and reporting; and
• The quality control results, which are shared with the business departments in weekly and monthly meetings and reported monthly to the risk management committee.

Internal and external audits

The internal audit department reports to the board of directors and performs traditional internal audits of the servicing operation. The audit team is satisfactorily credentialed, with many auditors attaining industry-recognized audit certifications. In mid-2022, the company internally promoted a new audit head to replace the leader that took the head of servicing compliance role. Additional internal audit components we factored in our analysis include that:

• The audit team performs annual independent risk assessments that drive its audit plan, and, in our view, its audit universe coverage is comprehensive.
• It performs a risk assessment of auditable entities each year.
• High-risk areas are audited annually, moderate risk every two years, and low risk every three years.
• It uses an audit management software to manage the audit lifecycle including issue tracking.
• Audit findings are classified by severity and ultimately determine the overall audit score.
• Audit issues are tracked in the companywide change-management tracking file.
• Audit results are reported to senior executives and then presented to the board quarterly.
• The audit team performs validation testing for sustainability of corrective actions.

The majority of internal audit reports that we examined reflected satisfactory results. We discussed the audits with findings that we considered significant with the internal auditor and are satisfied with the status and resolution efforts.

Newrez's internal monitoring and control activities are supplemented by external SOC1 Type II, Regulation AB (RegAB), and Uniform Single Attestation Program (USAP) certification audits. The 2022 RegAB and USAP certification audits exhibited no material instances of non-compliance. While the 2022 SOC1 Type II noted exceptions, all were mitigated and/or had risk mitigation controls in place.

Complaint management

Newrez has sound practices to manage and address customer complaints. Complaints are logged and tracked in a database by source and topic. Borrowers can also submit complaints from the borrower website, which are imported directly to the tracking database, providing efficiency. Management indicated that most complaints are received via the borrower website and that the connectivity reduces its overall response time.

In our view, complaint data and trends are appropriately reported to the business units and senior management. There are daily and monthly reporting to monitor complaint trends. The team meets monthly with the various departments to review root cause analyses to identify process improvement opportunities. Additional complaint management practices we considered include:

• Designated specialists to manage servicing transfer complaints;
• Dedicated resources to handle regulatory complaints;
• A dedicated team to address verbal complaints;
• Outgoing calls made on regulatory or escalated complaints and verbal complaints;
• That Newrez added a manager to lead the root cause analysis process and liaise with change management department when necessary;
• A quality review of responses to regulatory complaints;
• Social media complaint monitoring; and
• That it resolves RESPA-related complaints within an average of 15 days. The average resolution time is longer year over year and longer than the peer average.

Vendor management

The vendor management department oversees procurement and performance of all vendor relationships. Newrez uses contract management and vendor management software to manage, among other things, contracts, due-diligence assessments, ongoing oversight routines, and reporting. In our view, the controls and automation provided by this type of software is often warranted for large servicing operations. Furthermore:

• There is a formal due-diligence framework for prospective vendors.
• Newrez maintains a reasonable approach to assessing and assigning vendors a risk rating.
• Newrez performs annual reviews for high and moderate-risk vendors.
• The annual reviews for its high-risk tier vendors are performed on-site on a bi-annual basis with a full desk review on the alternate year. We note that we typically see annual onsite reviews on a scheduled basis for high-risk vendors among similarly and higher ranked servicers.
• Documented performance evaluations (typically monthly for default attorney and other high risk tier vendors) are in place to monitor ongoing vendor performance and compliance with its policies.
• There are periodic reviews by the vendor management department of high-risk audits to validate performance evaluations. The reviews are performed by the vendor management team and documented in the system.
• A dedicated team within the default operations department monitors default attorney performance.

Insurance and legal proceedings

Newrez 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--Primary And Special Servicing

The loan administration subrankings are ABOVE AVERAGE for residential mortgage loan primary and special servicing.

New-loan boarding

Newrez has a well-controlled boarding process. The loan boarding process is managed through a workflow system that tracks tasks and key process milestones. Its loan boarding system creates a project plan for each transaction, assigns owners to project tasks, and manages loan level exceptions throughout the process, which, in our view, allows it to efficiently manage bulk transactions. Each portfolio is assigned an owner to oversee the boarding process and coordinate with various business units for data validation. Additional key aspects that we considered in our analysis of the loan boarding process include:

• Newrez's solid experience boarding flow and large bulk acquisitions.
• That all loans are boarded electronically;
• An import tool that automates much of the data mapping work between its system and the prior servicer;
• Automated data testing, such as identifying logical errors in preliminary data;
• Data reviews before and after boarding to identify missing, incomplete, or illogical data;
• System data to document the review of mortgage insurance data and interest rate terms for all adjustable-rate and step-rate loans before the next change date;
• Address and phone number skip tracing to ensure the accuracy of pre-boarding data;
• A pre-boarding customer website so borrowers can access data and make payments during the black-out period; and
• A review of loss mitigation-related data by the loss mitigation department to ensure in-flight activity is accurately reflected in its system and corresponding documents are available.

The members of a portfolio management team serve as client liaisons to oversee the respective portfolios and ensure the clients' servicing strategies are operationalized. A control team focuses on resolving operational issues raised by a client. Since our last review, Newrez enhanced its investor portal with dashboards and a modern interface that allows investors to configure performance reports. Furthermore:

• Clients have a dedicated portfolio manager who is supported by an analytical team.
• Before loan boarding, the portfolio manager holds client meetings to establish goals and performance objectives.
• The portfolio manager ensures that systems and processes are set up to service the portfolio in a manner that aligns with the client's strategy.
• The portal provides investors with portfolio and loan level data, a communication channel with operations, and data intelligence around those interactions.
• The client portal provides system-based workflow to manage loss mitigation investor approvals.

Payment processing

Newrez incorporates appropriate controls to mitigate posting-error risk and to ensure timely payment handling. Key processes and metrics for the cash management operations include that:

• There are payment processing staff in two servicing sites, which further mitigates business disruption risk.
• The vast majority (98%) of payments are posted electronically, which is similar to its peer average.
• It transitioned to a different lockbox provider in October 2022. The lockbox provider can resolve exceptions the same day as receipt.
• The percentage of loans on an automated recurring payment draft (34%) increased from the prior year period.
• There is a dedicated team to manage unapplied suspense and an automated suspense sweep function and routines to request business units for posting instructions when required.
• The company has check imaging before loan boarding to aid in customer service if the customer calls to confirm that a check was received.
• It automated the production of payoff quotes in early 2022.
• There is a 16% turnover rate in Newrez's cashiering area, which is higher than the peer average.

Investor reporting

Newrez displays sound controls over its investor reporting and remitting and account reconciling functions. Since our last review, Newrez hired a new experienced SVP to lead investor reporting. It also added experienced senior managers to the team from the Caliber acquisition. The investor reporting team is organized by investor (see table 3). Since our last review, it began implementing SBO.NET, a new system to automate accounting and reconciliation processes to manage reporting and accounting beginning with a GSE portfolio. It also implemented a cloud-based system repository for reporting and reconciliations. Controls and metrics that factored into our analysis include:

• A largely automated investor reporting process;
• Electronically reporting and remitting to all investors, which is consistent with industry practice;
• Monthly reconciliation of custodial accounts;
• A system that mostly automates the monthly account reconciliation process;
• Alerts for incomplete items approaching timelines and service level monitoring for key activities;
• Biweekly meetings with senior management to review any aging open account reconciling items; and
• An investor account staff turnover rate of 7%, which is good and compares favorably to the peer average.

In our prior review, we noted a significant increase in the number and dollar amount of open account reconciliation items aged over 60 and 90 days that was higher than we commonly observe. The number of aged reconciling items remains high.

Table 3

Escrow administration

The company uses industry-recognized vendors to handle the majority of its tax and insurance administration. Its internal escrow team manages the escrow analysis process and exhibits sound oversight practices to monitor the activities of the two vendors. Practices and metrics we considered in our analysis include:

• A personalized video sent to borrowers to describe the escrow analysis statement;
• Call calibration exercises with the tax and insurance vendors to ensure call behaviors are consistent with expectations;
• The insurance vendor's 49-second average speed of answer (ASA) and 4.1% abandonment rate (ABA), which are satisfactory;
• The ASA and ABA for its tax vendor, which are 27 seconds and 0.5%, respectively;
• Vendor oversight activities, such as scorecards and regular meetings to discuss trends and open issues;
• An interdepartmental QA team to monitor service levels and production quality;
• Manageable staff turnover within the escrow department;
• Reported non-reimbursable tax penalties of $0.03 per loan, which is similar to its peer average;
• An escrow shortage spread of up to 60 months depending on the client, which is a positive factor as a special servicer; and
• Homeowners' association lien monitoring for all loans in super lien states.

Similar to many servicers that we rank, mortgage insurance is managed in the escrow department. It maintains a team responsible for ensuring mortgage insurance data and any loan data that affects mortgage insurance is accurate, which we view as a positive factor.

Mortgage reconveyance

Newrez's mortgage reconveyance processes are effectively controlled. It uses two vendors to prepare and record lien releases, largely mitigating disruption risk. Using multiple vendors also allows it to handle volume fluctuations, especially sudden spikes in payoffs that are common in low interest rate environments. The company reported that all lien releases were processed within statutory compliance, which is better than its peer average.

Newrez also services mortgage loans originated with electronic notes. It uses an electronic vault vendor to house the notes. A physical collateral file is created when there is any action impacting the note.

Special loans administration

Management has appropriate controls in place for the administration of its adjustable-rate mortgage (ARM) and Servicemember Civil Relief Act (SCRA) loan portfolio. For ARM loans, staff perform dual verifications to confirm that the indices are correctly input into the system. It also performs a data-to-document review of all loans prior to the initial rate change and a review of 20% of subsequent rate changes. The portfolio is reviewed monthly to identify loans that may qualify for SCRA benefits. There are also multiple reviews performed before foreclosure referral and sale.

Customer service

Newrez maintains efficient operations to manage customer inquiries through multiple contact channels, including self-service options and online chat. Its call center team is equipped with a web-based customer relationship management system that provides information from multiple data sources to staff in a single system. The system also provides the user with prompts to assist with the call handling, workflows to manage tasks to other departments, and a capability to send secure emails to borrowers.

During 2022, the company created a new universal call center job role by combining its customer service and collections roles. In this new job role, the universal agent handles customer service and collections calls--in effect, all calls on performing loans up to two payments owing (i.e., D60).

Beginning in 2022, the company transitioned a large number of former Caliber customer service staff to its customer service platform as it migrated the majority of Caliber loans to its servicing system. In all, the number of customer service staff roughly doubled from the end of 2021 to year-end 2022.

Additional factors we considered in our analysis include:

• Multiple call center sites that provide geographic coverage and improve call center operational resilience;
• Hours of operation that provide coverage across time zones.
• A language line available to assist borrowers in non-English languages;
• Secure email messaging (system controlled) from its customer service application;
• Proactive emails to notify borrowers of events and document availability (such as IRS Form 1098s);
• The use of personalized videos delivered via email to describe complex topics like escrow changes and servicing transfers;
• Text and website notifications for routine events, such as payment received confirmation and new documents sent;
• Call-back (virtual hold) technology to limit borrower hold times;
• A high average speed of answer and elevated abandonment rate (see table 4) that are worse than peer averages.
• A voice response unit capture rate of 60%, which is better than its peer averages;
• A customer satisfaction survey to identify trends and improvement opportunities; and
• Customer service management turnover of 5%. Customer service staff turnover (26 %) is moderately high relative to its peer average.

Furthermore, Newrez performs traditional complete call monitoring on a minimum of seven calls per month for each customer service call center employee, which is fewer than its peer average. Newrez augments its traditional call monitoring with speech analytics software that scans all calls for regulatory compliance issues and other required disclosures.

Table 4

Default management

There are sound practices to engage borrowers, resolve delinquencies, and mitigate loss with a range of technology to effectively manage loans through the default cycle. The company also maintains systems and programs to effectively address a high-touch approach needed for special servicing loans including RPLs and NPLs.

Tables 5 and 6 show the delinquency rates for the prime and special servicing portfolios, respectively.

Table 5

Table 6

The company does not track industry experience for most default management and staff. However, using company tenure as a proxy, we believe the default management team has a generally satisfactory management industry experience; however, based on that proxy, the experience averages in most areas (see table 7) would be low relative to peer averages.

Similarly, with the exception of collection staff, the company does not track industry experience. Collection staff exhibit generally similar industry experience averages as peers. Using company tenure as a proxy for experience, default staff have generally adequate experience. Default management and staff turnover rates remain manageable. Collections and REO staff turnover rates were better than peer averages, while foreclosure and bankruptcy staff turnover was high compared to peer averages.

Table 7

Collections

Newrez has sound methodologies to establish contact with borrowers. Loans, including RPLs and NPLs, are assigned a risk profile at time of boarding based on loan history. A risk-scoring model that factors the risk profile and other risk indicators is used to determine calling strategy and allocate more resources to higher-risk loans. It primarily uses a dialer system to maximize outbound calling efficiency. Dialer campaign types vary, and manual dialing is also deployed to maximize the probability of right-party contact. Since our prior review, Newrez established a dialer strategy team to manage outbound contact strategies and resources. Furthermore:

• Newrez maintains specialty collections teams and calling campaigns for its special servicing portfolios.
• The risk score is refreshed monthly.
• The company implemented a product to reduce likelihood of outbound calls blocked by carriers to improve right party contact rates.
• Controls and technology are in place to mitigate Telephone Consumer Protection Act risk, including an interactive voice response system to capture borrower consent and manual calling to borrower cell phones where it lacks consent allowing the use of dialer technology.
• The promise-to-pay success rates for the 30-day and 60-day delinquent loans are 58.0% and 51.0%, respectively, for its special servicing portfolio, which are lower than peer averages.
• An overall right party contact rate of 7.3% that is satisfactory.
• A minimum of seven calls per month are monitored for each collections agent, which is fewer than peers' minimums. As previously noted and similar to customer service calls, manual call monitoring is augmented with speech analytics software that scans all calls for regulatory compliance issues.
• We consider the collections ASA and abandonment rates (see table 4) solid, and they are comparable to peer averages.

Loss mitigation

The loss mitigation area utilizes a complementary approach of a high-touch strategy and technology. An assigned single point of contact (SPOC) is responsible for engaging a borrower, identifying the appropriate solution for the borrower, and assisting the borrower through the process. When a borrower applies for loss mitigation, the Loss Mitigation System provides the SPOC with a solutions menu based on investor rules and customer eligibility. Programmed into the tool are each investors' program requirements, required documentation, and modification waterfalls. The LMS is integrated with the servicing system and borrower website, which allows customers to initiate a loan modification request online, which then provides a preliminary determination and, in some cases where documents are not required, an offer in real-time. Since our last review, Newrez has integrated the system with the GSEs' default management systems.

Additionally, borrowers can upload required documents, see specific items that may be missing, and monitor the status of the review. For modifications that require a trial plan, borrowers can view the plan and make trial payments online. This self-service functionality could reduce the loss mitigation review time and potentially increase pull-through, which have tangible benefits for Newrez and investors.

We also considered certain practices, metrics, and controls in our analysis:

• There are dedicated loss mitigation trainers.
• We consider its SPOC average active caseload to be manageable.
• Mortgage assistance application tracking is managed through the loss mitigation system, mitigating the risk of dropped files.
• Investor rules are managed within the loss mitigation system providing technology-based controls.
• The system has built-in approval controls based on loss mitigation terms.
• All underwriter-approved deals are reviewed by a supervisor, and denials, including income calculations, receive a second-look review by a separate team.
• Quality control checks are in place to review loss mitigation agreement documents before they are mailed and again when Newrez receives the returned agreement documents.
• Loss mitigation ASA and abandonment rates are high and compare unfavorably to the peer averages.
• Newrez monitors a minimum of two loss mitigation calls per month for each employee, which is fewer than peers. We note that, similar to collections and customer service, speech analytics software scans all loss mitigation calls for regulatory compliance.

Newrez has a proactive loss mitigation philosophy designed to engage the borrower early and execute the most effective workout to mitigate losses. Borrowers can initiate and manage a loss mitigation request online. It also uses outbound IVR to provide loss mitigation plan status updates. Strategies and metrics that we considered include that:

• It performs outreach events (in person and virtual) to meet and engage with borrowers during the pandemic.
• SPOCs that can perform asset searches and initiate skip tracing when needed.
• It has management of portfolio performance metrics to drive engagement and workouts.
• There are door-knock strategies for un-engaged borrowers.
• The company uses outbound IVR technology to contact borrowers on forbearance plans and notify borrowers of streamline modification offers.
• Text messaging and email reminders are sent to borrowers.
• Personalized videos are created to explain the approved loss mitigation workout.
• Newrez has a program to use online auctions to maximize returns on short sales, which we view as an innovative strategy.
• Net present value is a factor in its decision model.
• Borrowers have the ability to make trial payments online.
• There is an average of 10 and nine days to loss mitigation decisions for the prime and special servicing portfolios, respectively, both comparing favorably to the peer averages.

Newrez has experience in a mix of loss mitigation solutions, with payment deferrals (shown as other) and loan modifications comprising the majority (Table 8).

Table 8

Foreclosure and bankruptcy

The foreclosure and bankruptcy departments are organized in a manner that allows them to appropriately manage foreclosure and bankruptcy administration. The foreclosure area is organized by function with separate teams based on task. This specialization is common among larger servicers that we rank, as it typically increases operational efficiencies and improves ability to scale. Since our last review, it automated certain interdepartmental tracking and monitoring practices, such as calculations of deadline dates to improve first legal filing date adherence. Key foreclosure administration practices, controls, and metrics that we took into consideration during our review are:

• Before initiating foreclosure, Newrez performs two reviews ensuring that investor and regulatory requirements are satisfied.
• A pre-foreclosure checklist is used to ensure a consistent review process.
• There is a process to upload documents from its imaging system to Black Knight Financial Services' LoanSphere.
• Considering the number of files per foreclosure employee, the foreclosure caseload is manageable.
• Attorney communication and tracking is facilitated through LoanSphere.
• The percentage of foreclosures completed to standard timelines for its primary and special servicing portfolio are 94% and 85%, respectively. Each is better than the respective peer average.
• A tool benchmarks foreclosure attorney performance relative to the industry.
• There are specialized foreclosure holds teams by specific hold reason.
• The company added a designated team to update information to Loansphere.
• There is monthly communication with the operations to review root causes of foreclosure delays.
• A dedicated team executes foreclosure documents.
• Multiple SCRA checks occur before a foreclosure sale.
• A process to reconcile post-sale inventory with the status reported in the government-sponsored entity system.
• All chapter 13 plans are reviewed for loans that transfer to Newrez.
• There is an in-line QA team within the department.

The bankruptcy team utilizes a proprietary case management system with an interactive user interface that provides relevant loan-level data, open tasks, and key milestones in a well-organized format. The system workflow is task-driven based on key milestones. We considered the company's bankruptcy administration processes, controls, and metrics:

• Newrez has multiple channels to detect new filings and monitor cases for status changes.
• The case management team manages the timeline throughout the bankruptcy process.
• There is a designated phone team to handle debtor and attorney calls for loans in active bankruptcy.
• The company reported that no proofs of claim were rejected and that it had a minimal dispute rate; both are similar to peers.
• The assigned attorney firm prepares the proofs of claim; all are reviewed prior to filing.
• An interdepartmental QA team reviews bankruptcy documents before they are filed.

A dedicated attorney network team monitors the default attorney network and measures performance using a scorecard based on timeliness to key service levels. The monthly performance evaluation also includes feedback from the timeline management team and firm ranking relative to other firms. Procedures are in place to require improvement plans and hold new referrals for underperforming firms.

Real-estate owned (REO) assets

The company has appropriate procedures and technology in place to manage the REO asset inventory, which has increased year-over-year. It uses an industry-known asset management system to manage its REO assets (since our last review, it consolidated the asset management systems it uses from two to one). Key REO processes, resources, and performance metrics include:

• And online task-based system asset managers use to manage assets and interact with listing agents;
• Two on-staff appraisers to reconcile the multiple values and enhance property valuation quality;
• Experience utilizing online auctions as a disposition channel;
• A licensed general contractor on staff to review repair analyses;
• Asset managers who utilize virtual walk-throughs for all properties to better assess the property condition;
• A net present value analysis incorporated into Newrez's decision model to determine the disposition strategy, including repair and full rehabilitation;
• Multiple industry-recognized property preservation vendors providing national coverage;
• A vendor to manage vacant property registrations;
• A 25% and 47% portion of REO inventory aged 180 or more days for its prime and special servicing portfolios, respectively.
• Newrez's performance of broker performance scorecards measuring factors like task completion, valuation, and marketing performance.
• It's average 91 days to market an asset and 97% gross sale to market value execution for its prime loan portfolio, both comparing favorably to the peer averages.
• The company's average 126 days to market an asset and 93% gross sales to market value for its special servicing portfolio, the former of which is better than peers with similar gross execution.

Financial Position

The financial position is SUFFICIENT.

Related Research

• Newrez LLC ABOVE AVERAGE Residential Mortgage Loan Primary And Special Servicer Rankings Affirmed, Sept. 15, 2023
• Select Servicer List, July 18, 2023
• Rithm Capital Corp., Sept. 7, 2022
• Servicer Evaluation: Shellpoint Mortgage Servicing, Feb. 15, 2022
• Servicer Evaluation: Caliber Home Loans Inc., March 22, 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

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