Fitch Upgrades Walker & Dunlop's Commercial Primary Servicer Rating

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has upgraded Walker & Dunlop, LLC's (Walker & Dunlop) commercial primary servicer rating to 'CPS2' from 'CPS2-'.

The upgrade reflects a fully developed internal audit function, an integrated technology platform consolidated through a new data warehouse, as well as two new employee development programs to help strengthen the company's management bench. Rating positives also include the company's strong and stable management team, along with appropriate internal controls bolstered by the new technology platform. The rating also considers the financial condition of the parent, Walker & Dunlop, Inc., which Fitch believes is sufficient to support the servicing platform.

The rating reflects the materiality of servicing functions outsourced to PNC Real Estate / Midland Loan Services (Midland). While the company has had stability at the senior and middle management levels, Fitch's concerns also included three years of elevated turnover at the staff level and Walker & Dunlop's concentration in servicing multifamily properties.

In addition to the multifamily concentration, the degree to which servicing processes are currently outsourced limit the ratings to the 'CPS2' category.

Since the company's outsourcing relationship with Midland began in 2009, it has contracted out a significant portion of its primary servicing functions. Currently, Walker & Dunlop retains responsibility primarily for customer service, most investor reporting, asset administration, insurance compliance, and oversight of outsourced functions. Fitch views positively Walker & Dunlop's ability to manage the contracted services, and recognizes the presence of alternative service providers available in the market, as well as the low likelihood of an unforeseen termination of the outsourcing relationship. Fitch believes the company's existing staff has the ability to perform contracted services in-house, but expects additional resources would be required to meet capacity needs.

Walker & Dunlop is a commercial mortgage finance company that originates and retains servicing of commercial real estate (CRE) loans primarily through government-sponsored enterprise (GSE) lending programs. Through its predecessor, Walker & Dunlop Inc., founded in 1937, Walker & Dunlop has extensive experience as a mortgage finance company, particularly with multifamily properties which make up 89% of the servicing portfolio by balance as of April 30, 2015. The company's largest servicing clients by balance continue to be GSEs and the U.S. Department of Housing and Urban Development (HUD), representing approximately 77% of the servicing portfolio, down from 89% at Fitch's last review GSEs form the majority at 76%, consistent with past reviews.

As of April 30, 2015, Walker & Dunlop's total servicing portfolio consisted of 4,681 loans totaling $47.3 billion, of which 514 loans totaling $9.6 billion were CMBS from mostly Freddie Mac capital markets execution transactions. The company has seen an increase of 165% by loan count in its CMBS servicing portfolio from December 2012 to April 2015, due mostly to the company's increased participation in Freddie Mac's capital markets execution transactions.

The servicer rating is based on Fitch's methodology, as described in the reports highlighted at the end of the press release.

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

Applicable Criteria

Rating Criteria for Structured Finance Servicers (pub. 23 Apr 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864375

U.S. Commercial Mortgage Servicer Rating Criteria -- Effective Feb. 18, 2011 to Feb. 14, 2014 (pub. 18 Feb 2011)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=584005

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988776

Endorsement Policy

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

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150730006423/en/

Fitch Ratings
Primary Analyst
James Bauer
Director
+1-212-908-0343
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Adam Fox
Senior Director
+1-212-908-0869
or
Committee Chairperson
Daniel Chambers
Managing Director
+1-212-908-0782
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

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