Other Specialist Rating Scales
In addition, Fitch Ratings provides specialist ratings on other topics. Operational risk ratings are assigned to servicers of commercial and residential mortgages and other asset types.
Asset manager ratings opine on the relative operational and financial capabilities of asset managers, trustees and others. Fund Credit and/or Volatility Ratings are assigned to fund's or local government investment pool's portfolio. Many of these ratings are offered internationally and in some cases on a national basis applying appropriate ratings modifiers and identifiers.
Servicer Ratings
General Servicer Ratings
Commercial and residential mortgage loans, loans backed by assets other than mortgages, or loans without collateral can be serviced by a combination of primary, master, and/or special servicers. Many transactions have all three types of servicers present, while others may only have one or two. Some of the reasons for the various structures are age of the transaction, complexity of the loans, strength of the primary servicer, current or anticipated delinquency, and need for advancing.
Rating Definitions
The servicer ratings are designed to be an indication of a servicer's ability to effectively service commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS), and asset backed securities transactions. The ratings incorporate Fitch Ratings' analysis of the servicer's experience in the servicing business, management, staff, training programs, procedures, controls, and systems among others. The influence of financial condition within an operational rating scale is very limited, and relates only to those elements where operational strength may be directly affected by financial condition. The agency's servicer ratings therefore address features of the company's profile largely independent of the entity's financial condition.
The agency rates commercial, residential, and small balance commercial mortgage servicers, as well as asset backed servicers on a scale of 1–5, with 1 being the highest rating. The ratings are written with either a C, R, SB, or AB prefix to denote the asset class to which it applies: 'R' for residential mortgage loans, 'C' for commercial mortgage loans, 'SB' for small balance commercial mortgage loans, 'CLL' for large commercial mortgage loans, and 'AB' for asset-backed and/or unsecured loans. The asset class prefix will then be followed by the abbreviation denoting the servicer type: 'PS' (primary servicer), 'MS' (master servicer), 'SS' (special servicer), or 'CLS' (construction loan servicer). The final component of the rating is the rating level. Within some of the rating levels, the agency further differentiates the rankings by pluses and minuses.
Level 1 Servicer Rating (ABPS1, ABMS1, ABSS1, CPS1, CMS1, CSS1, CCLS1, CLLSS1, RPS1, RMS1, RSS1, SBPS1, SBSS1)
Servicers demonstrating the highest standards in overall servicing ability.
Level 2 Servicer Rating (ABPS2, ABMS2, ABSS2, CPS2, CMS2, CSS2, CCLS2, CLLSS2, RPS2, RMS2, RSS2, SBPS2, SBSS2)
Servicers demonstrating high performance in overall servicing ability.
Level 3 Servicer Rating (ABPS3, ABMS3, ABSS3, CPS3, CMS3, CSS3, CCLS3, CLLSS3, RPS3, RMS3, RSS3, SBPS3, SBSS3)
Servicers demonstrating proficiency in overall servicing ability.
Level 4 Servicer Rating (ABPS4, ABMS4, ABSS4, CPS4, CMS4, CSS4, CCLS4, CLLSS4, RPS4, RMS4, RSS4, SBPS4, SBSS4)
Servicers lacking proficiency due to a weakness in one or more areas of servicing ability.
Level 5 Servicer Rating (ABPS5, ABMS5, ABSS5, CPS5, CMS5, CSS5, CCLS5, CLLSS5, RMS5, RPS5, RSS5, SBPS5, SBSS5)
Servicers demonstrating limited or no proficiency in servicing ability.
The servicers at level one are expected to have all areas of their company operating at top efficiency and productivity. Characteristics of a level one (1) servicer may include:
Demonstrated expertise in servicing a diverse portfolio, ie loan type, property type, and geographical concentration among others.
Highly seasoned management team with a substantial working history together.
Stable employee base with little turnover.
Very strong and stable financial resources.
Very well documented and complete policies and procedures, which are readily available to all employees.
Fully integrated, flexible systems with versatile reporting capabilities.
Characteristics of a level two (2) servicer may include:
Effective management of a diverse portfolio.
Seasoned management team with a history of working together.
Stable employee base.
Strong, stable financial resources.
Well documented and complete policies and procedures.
Strong systems and reporting capabilities.
Characteristics of a level three (3) servicer may include:
Demonstrated proficiency in servicing diverse product groups.
Adequate financial resources for its portfolio size.
Effective internal controls.
Proven proficiency in staffing and training.
Established comprehensive policies and procedures.
A master servicer must have experience and controls in place for monitoring primary servicers and other sub-servicers.
A special servicer must demonstrate adequate workout and disposition experience.
Servicers that receive a level four (4) rating may be incompatible with the servicing criteria employed by Fitch Ratings in rating CMBS or RMBS transactions, unless additional support or structural features are incorporated. Listed below are a few situations that could cause the assignment of a level four (4) rating:
Length of time or experience in servicing type or product type.
Recent event that has not had time to be resolved or its effect fully assessed (i.e. merger, acquisition, change in management, or system conversion, among others).
Specific concern or problem with the servicer.
Residential mortgage servicers that receive a level five (5) rating exhibit aspects in their operations, process, or financial condition that are incompatible with Fitch Ratings' criteria for rated RMBS transactions unless strong additional support or structural features are incorporated.
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