Fitch Downgrades Green Tree's U.S. RMBS Servicer Ratings; Outlook Negative

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has taken the following rating actions on the U.S. residential primary servicer ratings for Green Tree Servicing, LLC (Green Tree):

--U.S. Residential primary servicer rating for prime product downgraded to 'RPS2-' from 'RPS2+'; Rating Watch Negative removed; Outlook Negative assigned;

--U.S. Residential primary servicer rating for subprime product downgraded to 'RPS2-' from 'RPS2+'; Rating Watch Negative removed; Outlook Negative assigned;

--U.S. Residential primary servicer rating for HLTV product downgraded to 'RPS2-' from 'RPS2+'; Rating Watch Negative removed; Outlook Negative assigned;

--U.S. Residential primary servicer rating for HELOC product downgraded to 'RPS2-' from 'RPS2+'; Rating Watch Negative removed; Outlook Negative assigned;

--U.S. Residential primary servicer rating for second lien product downgraded to 'RPS2-' from 'RPS2+'; Rating Watch Negative removed; Outlook Negative assigned;

--Special servicer rating downgraded to 'RSS2-' from 'RSS2+'; Rating Watch Negative removed; Outlook Negative assigned.

The downgrades are based primarily on several areas of weakness that have come to light in Green Tree's corporate governance and operational controls. Fitch found that the issues identified by external parties were not identified and corrected through the company's own internal processes. The ratings reflect the company's aggressive portfolio growth, and also take into consideration the financial condition of Green Tree's parent, Walter Investment Management Corp (Walter), a non-publicly rated entity by Fitch, as financial condition is a component of Fitch's servicer ratings. In addition, the ratings incorporate improving customer servicer metrics and continued investment in technology.

The Outlook Negative also incorporates the company's pending large scale system integration as it converts most of its servicing portfolio to an industry standard servicing system from its proprietary servicing system.

The downgrades include consideration of issues related to Green Tree failing eight of 29 National Mortgage Settlement (NMS) metrics for the quarter ended Dec. 31, 2013, which were reported by the Office of Mortgage Servicer Oversight (OMSO) in May 2014 during Fitch's current 12 month review period, as well as ongoing reviews by the CFPB and FTC. The issues identified had a negative impact on Fitch's assessment of the operational areas involved. The NMS metrics are monitored by the Office of Mortgage Servicer Oversight (OMSO). OMSO required corrective action plans (CAPs) for the failed NMS metrics, and Green Tree was quick to develop and implement CAPs. For the quarter ended June 30, 2014, the NMS Monitor determined that Green Tree had satisfactorily completed CAPs for all eight of the metrics that the company had previously failed, and passed the threshold error rate test for two of those metrics for which testing had resumed.

Green Tree has had aggressive portfolio growth over the past two years. The company's servicing portfolio increased to 2,132,201 loans totaling $229.2 billion as of Dec. 31, 2014 from 926,182 loans totaling $73.1 billion as of Dec. 31, 2012. In 2013, the growth was driven primarily by acquisitions from ResCap and Bank of America, N.A., and was largely focused on performing FNMA loans. Green Tree became subject to oversight by OMSO and compliance with the NMS in connection with its MSR acquisition in 2013 of 380,000 Fannie Mae loans from ResCap. While Green Tree's management had indicated to Fitch earlier that the 300 NMS standards had been implemented, Fitch believes that the aggressive timing of the integration of the NMS testing requirements for the ResCap portfolio may have contributed to their resultant failures.

Green Tree continued to grow its MSR and subservicing portfolios in 2014. Over the course of the year, the company acquired $51.2 billion in MSR's and $8.6 billion in subservicing. Included in these figures is a $30.2 billion MSR acquisition from CitiMortgage and a $16.1 billion MSR and subservicing transaction with Everbank. Fitch will continue to monitor the success of Green Tree's acquisitions, the results of any regulatory findings, and the effectiveness of its system integration as the company seeks to balance its growth in a more highly regulated environment.

Green Tree's corporate headquarters are located in St. Paul, MN. The company has five servicing locations including Rapid City, SD, Fort Worth, TX, Irving, TX, Tempe, AZ, and Jacksonville FL. In addition, Green Tree also maintains 18 regional offices.

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 U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria', dated Jan. 31, 2014 which is available on the Fitch Ratings web site at 'www.fitchratings.com'.

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

Applicable Criteria and Related Research:

--'Rating Criteria for Structured Finance Servicers' (Jan. 31, 2014);

--'U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria' (Jan. 31, 2014).

Applicable Criteria and Related Research:

Rating Criteria for Structured Finance Servicers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=731750

Rating Criteria for US Residential and Small Balance Commercial Mortgage Servicers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=731747

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981763

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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
Roelof Slump
Managing Director
+1 212-908-0705
or
Committee Chairperson
Vanessa Purwin
Senior Director
+1 212-908-0269
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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