Fitch Affirms First Republic Bank's RMBS Servicer

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following U.S. residential mortgage servicer rating on First Republic Bank (FRB):

--U.S. residential primary servicer rating for Prime product at 'RPS2-'; Outlook Stable.

The affirmation of the servicer rating and Outlook is based on FRB's effective high touch servicing model and enhancements to its internal control environment. Due to this personal service approach and the low level of delinquencies, the rating also reflects FRB's moderate use of servicing technology and the relatively low volume of REO assets that the company historically has handled. In addition, the rating incorporates the company's financial condition. FRB is rated 'A-'/Stable Outlook.

FRB is a California-chartered commercial bank and trust company that was founded in 1985. FRB specializes in providing personalized, relationship-based preferred banking, preferred business banking, real estate lending, trust and wealth management services to clients in selected metropolitan areas throughout the United States. FRB's servicing operations are headquartered in San Francisco, CA with an additional site in Century City, CA, which was relocated from Las Vegas, NV since Fitch's prior review. As of Dec. 31, 2015, FRB was servicing more than 48,400 residential mortgage loans totaling $35.7 billion. This included approximately 32,000 non-agency prime loans totaling $31.5 billion and over 10,000 loans totaling $8.7 billion in third party servicing which includes non-agency RMBS transactions.

FRB's high touch servicing model is well integrated into the bank's overall residential lending strategy. Relationship managers (RMs) are integral to the origination and servicing of residential mortgage loans. The incentive structure for RMs ensures strong knowledge of the borrowers and mortgaged properties that helps to address performance concerns. More so than other servicers rated by Fitch, FRB relies extensively on its RMs to resolve delinquent or defaulted loans. This servicing model is very effective for the high quality loans and high net worth borrowers that comprise most of FRB's residential mortgage portfolio. As of Dec. 31, 2015, only 0.14% of the residential servicing portfolio was 30 or more days delinquent, in bankruptcy or in foreclosure. However, this servicing model servicing model may not be as effective for higher risk, lower quality, or highly delinquent or defaulted portfolios.

As of Sept. 30, 2015, FRB is considered a financial institution with greater than $50 billion in total consolidated assets based on its average of total consolidated assets over the prior four quarters, and is now subject to certain requirements and standards applicable to such banks that are regulated by the FDIC and the CA Department of Business Oversight (DBO). In response to the current operating environment, heightened expectations from regulators and the imposition of more stringent regulatory obligations as its business continues to grow, FRB stated that it has incurred and expects to continue to incur costs in the form of additional personnel, professional fees associated with outside consultants, and infrastructure investments.

Since Fitch's prior review, FRB completed its initial risk and control self-assessment (RCSA) for all lending functions and deployed new BSA/AML processes and QC practices. The company also implemented additional post-funding QC for Dodd-Frank requirements and enhanced real time operational and processing reports including the creation of new management operational dashboards.

FRB relies on its experienced servicing management and staff that operate without a significant emphasis on technology. FRB has not invested in extensive collections or default management systems due to its historically very low volume of delinquencies and defaults. Also, most defaulted loans are resolved prior to completing a foreclosure sale, limiting the volume of REO properties that FRB has historically handled. As of Dec. 31, 2015, FRB had only one REO property in its portfolio. These factors in conjunction with the integral role of the RMs in servicing residential mortgage loans may limit the scalability of FRB's servicing operation.

Fitch rates residential mortgage primary, master, and special servicers on a scale of 1 to 5, with 1 being the highest rating. Within some of these rating levels, Fitch further differentiates ratings by plus (+) and minus (-) as well as the flat rating. For more information on Fitch's residential servicer rating program, please see Fitch's report 'Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers', dated April 23, 2015 which is available on the Fitch Ratings web site at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003690

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Fitch Ratings
Primary Analyst
Thomas Crowe
Senior Director
+1-212-908-0227
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Michael Laidlaw
Director
+1-212-908-0251
or
Committee Chairperson
Roelof Slump
Managing Director
+1-212-908-0705
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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