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Servicer Evaluation: First National Financial L.P.

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Servicer Evaluation: First National Financial L.P.

Ranking Overview
Subrankings
Servicing category Overall ranking Management and organization Loan administration Outlook
Canadian residential loan servicer ABOVE AVERAGE ABOVE AVERAGE ABOVE AVERAGE Stable
Financial Position
SUFFICIENT

Rationale

S&P Global Ratings' rankings on First National Financial L.P. (FNF) is ABOVE AVERAGE as a Canadian residential mortgage loan primary servicer. On Nov. 6, 2020, we affirmed the rankings (please see "First National Financial L.P. ABOVE AVERAGE Canadian Residential Primary Servicer Ranking Affirmed; Outlook Is Stable," published Nov. 6, 2020). The outlook is stable.

Our ranking reflects FNF's:

  • Experienced management team and staff with good overall tenure, albeit with certain leadership turnover during 2019 and 2020;
  • Sound internal audit program;
  • Detailed policies and procedures, which are reviewed and updated annually;
  • Solid technology and systems environment;
  • Long history of originating and servicing residential mortgage loans for FNF's own book and for third-party investors; and
  • Historically low delinquency rates.

Since our prior review (see "Servicer Evaluation: First National Financial L.P.," published July 20, 2018), the following changes and/or developments have occurred:

  • In November 2019, the chief operating officer (COO) was named president of FNF, and now holds the titles of president and COO.
  • FNF completed its transition to new Day Force software, which integrated the existing human resource and training applications into a single platform.
  • FNF now uses Microsoft Power BI to produce more dynamic reports with better visualization.
  • FNF adapted to a work-from-home environment in response to the COVID-19 pandemic.
  • The senior vice president and the vice president of residential servicing left the company.
  • A tax database has been developed to ensure accurate tax collection at origination and tax data transfer to the servicing system.
  • The use of DocuSign has been implemented to transition the renewal process to digital from paper.
  • The pricing of certain renewal products has been automated.
  • Automated procedures to manage and process deferral requests were developed and implemented.

FNF maintains a disaster recovery and business continuity plan, including response procedures to address operational disruption as a result of a pandemic event. In March 2020, the company implemented its plan due to the COVID-19 pandemic. Management reported that there were no disruptions to the company's operations or data facilities. The majority of FNF's employees have been working remotely, except a handful of employees who prefer to go into the office and are taking social distancing precautions.

The outlook is stable. While its portfolio has remained relatively flat over the last five years, we believe FNF, like most servicers, could face operational challenges associated with potential additional mortgage payment relief requests or managing an increased volume of mortgage loan delinquency should the economic downturn persist. We expect that management will redeploy or add staffing resources as needed should delinquencies rise. We will continue to monitor FNF's portfolio performance and default resolution effectiveness.

In addition to conducting a virtual meeting with servicing management, our review includes current and historical Servicer Evaluation Analytical Methodology data through June 30, 2020, as well as other supporting documentation provided by the company.

Profile

Servicer Profile
Servicing location Toronto, Ont.
Loan servicing system Optimus
As of June 30, 2020
Number of servicing employees 180
Volume (mil. C$ unpaid principal balance) 81,454
Loan count 300,968

FNF was founded in 1988 as a mortgage company, to originate and service residential mortgage loans. It started offering and servicing multifamily residential and commercial mortgage loans in 1990, including construction lending for single-family tract developments. The original principal partners still manage the company.

FNF is an approved lender for mortgage loans insured by the Canada Mortgage and Housing Corp. (CMHC), with origination offices in Toronto; Montreal; Halifax, Nova Scotia; Calgary, Alberta; and Vancouver. The company originates loans in all 10 Canadian provinces and three territories. FNF's headquarters and centralized servicing operations are in Toronto. The company also has a customer service center in Montreal to assist French-speaking borrowers.

The parent company of FNF, First National Financial Corp., is a Canadian originator, underwriter, and servicer of predominantly prime residential (single-family and multifamily) and commercial mortgage loans. With slightly over C$111 billion in mortgage loans under administration, FNF is Canada's largest nonbank mortgage originator and underwriter and is among the top three in the Canadian mortgage broker market. There has been limited growth in the residential portfolio in recent years (see table 1).

Table 1

First National Financial L.P.
Units (number) % Change(i) Volume (mil. C$) % Change (i)
June 30, 2020 300,968 1.83 81,454 2.89
Dec. 31, 2019 295,568 0.20 79,169 0.00
Dec. 31, 2018 294,976 0.91 79,166 2.55
Dec. 31, 2017 292,320 (0.07) 77,197 0.06
Dec. 31, 2016 292,527 -- 77,153 --
(i)June 30, 2020, YOY change based on the prior year end. YOY--Year-over-year.

Table 2

First National Financial L.P.--Portfolio Distribution By Province or Territory(i)
Units (%) Unpaid principal balance (%)
Ontario 41.7 45.6
Alberta 18.5 19.0
British Columbia 15.5 17.7
Quebec 13.2 9.6
Nova Scotia 3.3 2.2
Saskatchewan 2.3 2.0
Newfoundland 2.1 1.6
Manitoba 1.7 1.4
New Brunswick 1.2 0.7
Prince Edward Island 0.3 0.2
Yukon Territory 0.1 0.1
Total 100.0 100.0
(i)As of June 30, 2020. Totals may not add due to rounding.

Table 3

First National Financial L.P.--Prime Portfolio Breakdown By Investor(i)
Units (%) UPB (%)
NHA MBS/CMB 36.06 34.63
Private label securitization 5.46 5.07
Held for investment 1.86 1.79
Investor whole loan 56.58 58.49
Other investor 0.03 0.03
Total 100.00 100.00
(i)As of June 30, 2020. Totals may not add due to rounding. NHA MBS--National Housing Act Mortgage-Backed Securities. CMB--

Management And Organization

The management and organization subranking is ABOVE AVERAGE for Canadian primary servicing.

Organizational structure, staff, and turnover

While we believe FNF has an experienced, sufficiently tenured management team and staff, there have been key management changes since our last visit. The COO, who has been with the company since 2004, was named president in November 2019 and now holds the positions of president and COO. The senior vice president of residential mortgage operations left in December 2019, followed by the vice president of residential mortgage operations leaving in March 2020. A new vice president of operations was hired in August 2020 but there are no plans, at present, to replace the senior vice president position. We believe this flattening of the organization will have no negative impact to residential servicing operations. The residential servicing managers report to the vice president of operations, who reports to the president and COO.

Even with the changes at the senior levels, FNF reported a management turnover rate of only 2.82%, comparable to peers, with a staff turnover rate of 11.99% that is higher than peers but what we would consider manageable.

FNF's operations include the typical mortgage banking functions of originating and loan servicing. Additional corporate support is provided by First National Financial Corp., including human resources (manages payroll, benefits, and employee hiring), accounting (manages movement of funds and provides account reconciliations), audit/finance (ensures FNF's compliance with responsibilities to various stakeholders), and information technology (IT; provides solutions for efficient and effective ways to conduct business, in addition to general office and employee support).

FNF residential servicing staff levels have declined since our last review, resulting in an increase of mortgage loans serviced per employee. With the increased automation implemented, we do not consider this increase to be concerning at present. However, as with most servicers, FNF could face operational challenges associated with a high volume of mortgage payment relief requests or increased volume of loan delinquency related to the COVID-19 pandemic if the economic downturn persists. We expect that management will redeploy or add staffing resources as needed if delinquencies rise.

Training

We believe FNF has a competent education curriculum for all new hires. FNF also offers continuing education for tenured employees. Companywide, FNF has 13 people in the training group supporting residential servicing, residential underwriting, and commercial operations. Training features include the following:

  • A mentoring program that is coupled with formal classroom training to provide what we believe is an effective training curriculum, using full-time training staff to manage these requirements.
  • For new hires, training has been streamlined since our last review to help new associates integrate faster with the team. FNF reduced the formal classroom training for new hires to 12 days from 17 days so employees can move to on-the-job training sooner. On-the-job training includes e-learning modules, call training queues, as well as traditional side-by-side training and coaching.
  • New hire training also highlights specific topics and focuses on informative tips that are designed to introduce newer employees to the company and its operations.
  • The training manager continues to work with e-learning designers to make the training modules more interactive.
  • Training is tracked and administered through the PeopleFluent learning management system.
  • FNF requires employees to complete its annual online courses that address private information and changes to privacy laws.

FNF adapted to a remote training environment for new hires to deal with the operational changes necessitated by the COVID-19 pandemic. The adaptations included:

  • Developing a coach support system;
  • Utilizing Microsoft Teams to deliver virtual classroom training;
  • Creating a training call queue where training specialists call in and new hires practice call management skills; and
  • Using a screen-sharing application for trainees and coaches to view the work being performed.

FNF launched new software in 2018, which consolidated its human resource and training applications to a single platform.

Systems and technology

We believe FNF has effective technology to meet its residential servicing requirements. The company continues to focus on technology enhancement projects to further streamline and automate servicing tasks across various loan administration functions. FNF has well-designed data backup routines and disaster recovery preparedness.

Optimus (a Marlborough-Sterling product) has been the main servicing system for both residential and commercial mortgage loans since 2001. FNF utilizes version 4.5 of Optimus, which runs on an AS400/DB2 platform and interfaces with FNF's general ledger. Other notable features include the following:

  • An investor portal provides portfolio, assets, and property-level information to assess pool and loan performance.
  • The Microsoft Power BI tool is used to generate more dynamic team reports, which have better visualization than the previously generated Excel reports. FNF moved 68 reports onto this system by third-quarter 2020.
  • FNF's data processing operations are sufficiently automated and staffed. FNF has a default management risk-analysis screen to help facilitate reporting to investors and loan insurers.

Since our last review, FNF has implemented multiple system enhancements including:

  • The use of DocuSign to streamline the renewal process;
  • Advances for new mortgage loans are automatically bridged from the origination system to the servicing system; and
  • An automated refund process.

Servicing system applications 

FNF uses a proprietary origination system, Merlin, that automatically transfers residential mortgage loans to Optimus, the main servicing system for both commercial and residential mortgage loans. The customer service staff has live chat technology in both English and French. IT also maintains the investor- and borrower-facing portals.

Business continuity and disaster recovery  

FNF's disaster recovery and business resumption plan is sufficiently detailed. The deployment of its disaster recovery and business resumption plans in response to the COVID-19 pandemic was a live test of its program. FNF reported no issues with the implementation of its work-from-home strategy nor any service disruptions with its vendors. Details of its plans include the following:

  • FNF performs a test of its recovery plan annually. The last full and successful test was in June 6, 2020, with no issues noted.
  • FNF's data backup sites are located in Markham and Mississauga, Ontario, which are both adjacent to Toronto. These locations are under 30 kilometers away from the home office but are on a separate power grid from Toronto. Having a backup location this close to the central location is not a best practice.
  • FNF has an agreement with a major systems supplier to provide an emergency operations center (EOC). This EOC has seating for 150 employees, 24 hours a day, for a minimum of two weeks.
  • Employees also have the capability to work from home and have been doing so during the COVID-19 pandemic without issue per management. While some employees choose to come into the office, it is not mandatory, and those employees practice social distancing.
  • All core systems are replicated in real time and backed up to tape daily.

Cybersecurity 

FNF has IT staff and procedures dedicated to cyber security and its information security program. Program highlights include the following:

  • There is a defined incident response plan in the event of a security breach that includes measures to close any gaps and prevent future issues.
  • IT generates and monitors user network and application password updates, and managers review and validate user access semiannually.
  • FNF uses real-time network intrusion monitoring to identify suspicious or malicious activity. An external, independent vendor conducts annual penetration testing on the system, and there were no significant issues noted during the last test in June 2020. Additionally, FNF conducts internal penetration testing on a routine basis.
  • FNF sends monthly phishing emails to their employees to test awareness.
  • The company has a stand-alone cybersecurity insurance policy and access to a cybersecurity attorney as needed.
  • The company's IT department works closely with internal legal counsel and audit teams to ensure they are taking necessary precautions to protect access to the borrowers' personal information and adhering to all applicable laws and requirements.
  • All employees are required to complete annual training courses related to information privacy and security, including online cybersecurity courses, social engineering, and email security training.
Internal controls

We believe FNF's internal audit function coupled with external audits and its portfolio composition, is effective in mitigating risk and monitoring compliance with its own servicing standards, investor requirements, and those of the mortgage insurers (CMHC, Genworth Financial, and Canada Guaranty).

Policies and procedures 

We believe FNF's policies and procedures manuals include detailed process descriptions and adequately address all critical areas of servicing. The manuals are available online and in hard copy for all employees. A dedicated individual is responsible for managing the updates and provides them as needed. Senior managers review and approve all updates and suggested changes before they are implemented.

Quality assurance call monitoring 

The first line of defense is comprised of quality monitoring measures within customer service and collections. A minimum of eight calls per customer service rep, which is slightly higher than peers, and two calls per collector, which is less than peers, are monitored monthly. Quality scorecards are used to assess calls, which include assessments of both qualitative and quantitative factors. The scorecards are used for employee assessment, as well as coaching.

Compliance and quality control 

FNF does not have a dedicated team to perform compliance and quality control testing for mortgage loan servicing. Its in-house attorneys and managers are responsible for the change control process associated with any legislative changes. The lack of frequent, transactional testing, which is normally performed by a compliance group focused on regulatory and investor requirements, is an increased risk, though it is mitigated by the audits performed through the internal audit group, as well as external parties.

Internal and external audits  

FNF has an internal audit program for operations that consists of three full-time employees, which is an increase of one since our last review. We believe the audit team has sufficient education and industry experience. The audits and review schedule are designed to address and satisfy traditional risk assessments and performance methodologies through loan-level sampling to assess adherence to stated policy and servicing standards. Features of the audit function include the following:

  • The risk committee meets annually to discuss the risk assessment. Risk levels are determined by the internal audit group based on various items such as inherent risk, past audit experience, operational changes, or any new compliance requirements.
  • The audit cycle varies based on the risks but is performed at least every 12 months for residential servicing operations and every 24 months for commercial servicing operations.
  • Internal audit issues are reported quarterly to the board of directors and the audit committee.
  • Audits for information security are co-sourced with a vendor, who provides the necessary expertise.

FNF provided us with a summary of the most recent internal audits. There were no reportable findings for the residential servicing audits.

In addition to its internal audit process, FNF is subject to external audits by insurers and regulators. While we were not given access to these reports, management stated that there were no issues identified in those audits. FNF also completes an annual Uniform Single Attestation Program review and was in compliance, with no exceptions noted for the 2019 review. The Canadian Standard on Assurance Engagements 3416 Report from Oct. 1, 2018, through Sept. 30, 2019, contained one minor exception that has been remediated.

Complaint management

In our opinion, FNF demonstrates effective management of customer complaints and escalations. All customer complaints are directed to a centralized email address. The customer complaints team reviews all the emails and logs each complaint into a database. Each complaint is coded with a tier level to indicate the severity from one (minor) to four (major). Two senior managers and two managers are responsible for this escalation queue. Monthly reports show items opened, closed, and not worked on during the reporting period.

Vendor management

The business units manage their vendors at an operational level, while the legal department manages vendor procurement and contracting.

  • The IT department sends a list of due diligence questions to be answered by proposed vendors in order to determine vendor risk to the organization. Vendor information security requirements and privacy questions are tailored based on the identity of the vendor, nature of the service, and the type of personal information, if any, to be disclosed to and stored by the vendor.
  • The testing of the vendors' systems is conducted to determine suitability and compliance with FNF security and privacy standards.
  • The company has a vendor management committee who meets quarterly to discuss vendor effectiveness, protection of private information, timeliness, and other factors.
  • Feedback on vendors is given by the groups that use the various vendors, although FNF does not use a vendor scorecard.
  • FNF does not use any offshore vendors.
Insurance and legal proceedings

FNF 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 Residential Mortgage Loan Servicing

The loan administration subranking is ABOVE AVERAGE for Canadian primary residential mortgage loan servicing.

As of June 30, 2020, the residential division had 180 employees, who serviced a total portfolio of almost 300,000 mortgage loans totaling approximately C$80 billion including second liens, which are not part of our review (see table 1). The portfolio is concentrated in Ontario, which has the largest number of units (40.9%), followed by Alberta, (18.8%), British Columbia (15.7%), and Quebec (13.4%). Although concentrated in Ontario, based on the population demographics in Canada, we believe FNF's portfolio is sufficiently diversified geographically (see table 2 above).

New-loan boarding

FNF highlights the following aspects of its new loan boarding and data integrity function:

  • Funding personnel act as liaisons between originators/solicitors and servicing staff.
  • The boarding function includes an automated bridge from the Merlin origination system to Optimus, whereby borrower insurance and tax data are verified.
  • Before the mortgage loan closing, staff review all mortgage loan information, update data fields if necessary, and draw funding disbursements. Another person in the funding area performs a crosscheck of all mortgage loan data in an effort to ensure 100% of the mortgage loans have servicing system-to-document validation for key data points.
  • After closing, the funding administrator again reviews the completed mortgage loan file for key data points and then forwards it to the documentation area to follow up with the solicitor for the final reporting package.
  • Insurance information (carrier, expiration date, policy number, coverage, and agent) is updated on the servicing system for monitoring purposes.
  • Optimus also provides system exception reports for new mortgage loans, which staff review for errors.
  • The servicing system generates and automatically sends welcome letters to borrowers.

Since our prior review, FNF developed a tax database so that at the time of origination the proper amount of taxes that need to be collected at closing is calculated. This data is then bridged to the servicing system.

Overall, we believe FNF has sufficient controls to ensure the integrity of data for new mortgage loans.

Payment processing

FNF's payment processing is highly automated, and a single trust account provides for daily payment receipts that are allocated to the relevant investor and escrowed funds. Investor remitting and reporting is automated from the servicing system and has the following appropriate controls and reconciliation:

  • 99.90% of payments are through preauthorized checks or wire transfers.
  • The servicing system provides a daily automated interface to the general ledger's subledger accounts for tracking investor and escrow funds.
  • The finance and accounting area reconcile daily payment postings to bank account deposits.

We believe FNF's cash management and investor accounting/remitting functions operate under a well-controlled environment, including what we consider to be appropriate separation of duties.

Investor reporting

FNF has dedicated staff members for the various investor reporting and operational accounting activities that are properly segregated for reporting, remitting, and related account reconciliation processes. Highlights and controls of the process include the following:

  • Reporting is handled through the Optimus servicing system with automatically generated reports to meet reporting requirements for securitized and balance sheet loans.
  • The investor reporting group provides the monthly remittances to the custodians of each pool, less service fees.
  • The investor reporting manager reviews and approves all electronically delivered reports before submission.
  • FNF reports 100% electronic reporting and 98.50% electronic remitting to investors.
  • The separate finance and accounting area reconcile the investor funds from each trust account before remittance.
  • There were minimal aged items as of June 30, 2020.
Escrow administration

We believe FNF maintains an effective process for managing escrow administration. Its staff handle all borrower property tax and insurance matters. Initially, at loan closing, the funding area reviews the tax and insurance information and establishes appropriate data records on the servicing system. Funding also coordinates with a third-party vendor/consultant that performs tracking and validates insurance coverages. Some notable features include the following:

  • Approximately 48% of residential mortgage loans are escrowed for taxes.
  • FNF uses the servicing system to track taxes for both escrowed and non-escrowed accounts. Reminder letters are issued for non-escrowed mortgage loans, in which a request for payment confirmation is included. Tax reminders are issued 30 days after the tax due date or when it has been confirmed that the tax payments have not been paid.
  • FNF does not escrow for insurance, as is typical in Canada, but confirms coverage at loan closing and tracks insurance to ensure that adequate coverage remains.
  • FNF indicates that it closely monitors insurance tracking via exception reports and automated notices until it receives the updated policy from the borrower or their agent.
  • In the event of insurance cancelation or non-renewal, FNF sends three system-generated notices at 10-day intervals, after which it force-places the account under FNF's blanket policy.
  • Customers can provide a copy of their insurance policy through the customer portal.
  • For tax escrowed accounts, the Optimus system generates standard disbursement reports, which are manually reconciled to taxing authority bills by the escrow administration staff.
Discharges

Once requested by a borrower or their solicitor, discharge statements are produced within Optimus. The statements are reviewed and approved prior to issuing to the borrower. Once the discharge proceeds are received, the funds are posted to the servicing system and the mortgage loan status is changed to "discharged" when the account balance goes to zero. The company reported no discharges were processed outside of statutory compliance.

Renewals

Mortgage loans are tracked within Optimus for approaching maturity dates. Borrowers are contacted before their loan maturity date with their renewal offer. Since our last review, the renewal terms for some products have been automated, which eliminates the need for manual pricing by sales staff.

Additionally, FNF has implemented DocuSign for use in its renewal process. If a borrower is registered in FNF's online borrower portal, they receive the renewal offer through the portal and are able to execute the documents digitally through DocuSign. For those not registered, the renewal offer is mailed to the borrower. Accepted renewals are processed within the servicing and workflow systems. We believe that FNF has effective processes in place to manage renewals.

Customer service

FNF's customer service staff include 42 customer service representatives (CSRs), which is down from previous periods. Management stated the reduction in staff was due to a pause placed on hiring for open positions at the beginning of the COVID-19 pandemic. FNF began hiring to fill the open positions in July 2020.

Customer service is broken into two sub-functions: the customer service phone queue with agents in both Toronto and Montreal; and the customer service administrative team, which handles back-office support, including emails, faxes, and website requests. Customer call agents also make welcome calls to new borrowers to verify the data provided at application. Customer service performance metrics include the following:

  • CSR turnover was 10.64%, which is in line with other servicers we rank.
  • Call metrics for the first half of 2020 for both FNF and peers reflected the spike in call volumes due to the COVID-19 pandemic and the associated mortgage relief efforts. FNF reported 579 seconds for the average speed of answer and an abandonment rate of 10.64%%.
  • The group's first call resolution rate was 98.00%.

Customer service supervisors perform call monitoring reviews on at least eight calls per agent per month. This is slightly higher than peers. Supervisors assess agents with a scoring template on a random selection of calls. Tone, accuracy, compliance, and first call resolution are included in the assessment.

Default management

Similar to many servicers in the industry, FNF experienced a significant spike in call volume in the early stages of the COVID-19 pandemic from borrowers requesting payment assistance. Following investor and insurer guidance, it offered payment deferrals in response to the COVID-19 pandemic, for an initial period of three months with an additional three-month period on borrower requests. The company automated the creation and processing of payment deferrals. Highlights of this procedure include the following:

  • An online form for deferral requests and for borrower requested deferral cancelations was developed.
  • Requests are managed through the workflow tool to filter out duplicates.
  • A payment deferral procedure is run within the Optimus system that automatically creates the necessary steps to defer and capitalize the interest, stop automated payments during the deferral period and restart them at the end of the period, and automatically send an email to the borrower with the terms of the deferral.
  • Reporting for insurers and investors with deferral information was updated.

We view the automation positively because it allows the company to manage periods of higher mortgage payment defaults. However, we note that it remains unclear if the mortgage payment deferrals will be enough, depending on the extent of the COVID-19 pandemic and its impact on the borrowers. Specifically, the effectiveness of the payment deferrals will depend on if borrowers are able to resume making their payments by the end of the deferral period. If worsened economic conditions persist for a longer period of time and borrower hardships become longer lasting or permanent, the company may be faced with increased delinquency rates.

FNF collections and foreclosure departments have sufficiently tenured and experienced management and staff, and there was no turnover in either management or staff for the first half of 2020 (see table 4).

Table 4

First National Financial L.P.--Experience And Tenure
Management Staff
Avg. industry experience (years) Avg. present employer experience (years) Avg. industry experience (years) Avg. present employer experience (years)
Collection 21 9 10 14
Foreclosure 32 14 12 10
(i)As of June 30, 2020.

Table 5

First National Financial L.P.--Delinquency Rates(i)
Delinquencies (%)
Total delinquency (%) 30-59 days 60-89 days 90+ days Foreclosure (%) Bankruptcy (%) Real estate-owned (no.)
June 30, 2020 0.15 0.06 0.04 0.05 0.09 0 0
Dec. 31, 2019 0.12 0.07 0.02 0.03 0.09 0 0
Dec. 31, 2018 0.20 0.08 0.03 0.09 0.15 0 0
Dec. 31, 2017 0.18 0.05 0.03 0.10 0.13 0 0
Dec. 31, 2016 0.27 0.24 0.03 0.01 0.20 0 0
Dec. 31, 2015 0.14 0.11 0.02 0.01 0.30 0 0
(i)Totals may not add due to rounding.
Collections

FNF initiates borrower contact on the first day following delinquency. It will also issue collection letters from the first day of arrears and issue an escalated series of letters every 10 days thereafter.

Although a license is not required for collection agents in Canada, FNF does have a two-week internal training course and a testing program specifically for collectors. Collectors also receive quarterly refresher training courses to discuss best practices in an effort to ensure consistency. In addition, calls are also monitored by supervisors to ensure consistency and quality. Furthermore:

  • To help cure defaults, collectors may make payment arrangements with borrowers. For accounts greater than 30-days delinquent, all payment plans must be approved by a manager.
  • Senior staff members review all payment arrangements daily. Any exceptions are returned to the collector to fix.
  • Collectors have separate phone lines for inbound and outbound calls and call comments are noted on the Optimus servicing system.
  • FNF sends a system-automated collection letter at 30-days past due and issues a demand letter at 60-days past due.
  • Default management uses call campaigns, skip tracing, and occupancy checks to attempt to contact borrowers who are 30- to 60-days delinquent.
  • After an audit that ensures all foreclosure prevention options have been completed and signed off by a manager, FNF recommends the account for legal action and assigns one of several preapproved law firms to the account.
  • At 90-days past due, FNF commences power of sale or foreclosure of the property, depending on the province. A power-of-sale is a provision within the loan documents that allows lenders to dispose of the property without having to resort to the courts or take title to the asset.
Loss mitigation

Delinquency levels in FNF's portfolio have remained low with total delinquency as of June 30, 2020, at 0.15% for their portfolio (see table 5). In the Canadian market, low delinquency rates are common in servicer portfolios we rank. The company's collections and default management processes primarily follow CMHC guidelines. As a result, there has been an increased effort to provide additional forbearance and workout opportunities to further mitigate loss, reduce foreclosures and powers of sale, and promote home retention, especially during the COVID-19 pandemic. When all attempts to provide forbearance and loan modifications have been exhausted, all required legal action is managed internally. FNF demonstrates effective oversight of its claim-filing procedures. Overall, we believe FNF displays effective practices over its collection and default management efforts.

Table 6

Loss Mitigation Breakdown(i)
Prime (%)
Special payment arrangement 0.0
Payment deferment 0.0
Short payoff/shortfall 0.0
Paid in full 13.9
Modification/restructure 0.6
Transferred to insurer 45.8
Completed foreclosure/power of sale 25.3
Redeemed/brought current 13.9
Other 0.6
(i)As of June 30, 2020. Totals may not add due to rounding.
Foreclosure and bankruptcy

For much of its insured portfolio, FNF participates in early takeover programs with its insurers. In these programs, FNF refers the mortgage loan to a preferred law firm that manages the legal process until the initiation of conveyance to the insurer.

For mortgage loans outside of the early takeover programs, FNF has three default specialists who manage files from referral through asset liquidation. Highlights of the process include the following:

  • When collection efforts have been exhausted, the collector gathers documents and information to submit to the default team to review and approve the referral for legal action.
  • Once the referral for legal action is approved by the default manager or assistant manager, the file is transferred within the servicing system to one of the default specialists.
  • The default specialist selects an approved lawyer for the province to manage the loan. Typically, FNF has two firms approved per province and will rotate file assignments between them.
  • Upon receipt of the assignment, the attorney manages the legal process, communicating with the default specialist via email. FNF does not use a separate default system to track and manage mortgage loans in the legal process.
  • All vacant properties are secured and any required property preservation steps are completed.
Real estate-owned (REO)

FNF manages the REO portfolio in-house for those mortgage loans not included in the early takeover programs. While FNF has had no REO inventory to manage in-house for the past few years, they have systems and processes in place to manage any future inventory. FNF's REO management includes the following:

  • The staff utilizes a tickler system and the claim audit report to manage the tasks associated with REO management.
  • Once the property is secured after the foreclosure, quotes are obtained for property repairs and clean out.
  • A sales price is set based on an appraisal and a comparable market analysis within the guidelines of the insuring agency's requirements.
  • A realtor update is obtained every 30 days.
  • Once the property is sold and sale proceeds are received, the file is referred to the claims team to prepare and file any claims. FNF says it had no curtailments for the first half of 2020.

In our opinion, FNF has an effective REO process.

Financial Position

The financial position is SUFFICIENT.

Related Research

This report does not constitute a rating action.

Servicer Analyst:Leigh Stafford McLean, Farmers Branch + 1 (214) 765 5867;
leigh.stafford@spglobal.com
Secondary Contact:Marilyn D Cline, Farmers Branch (1) 972-367-3339;
marilyn.cline@spglobal.com
Analytical Manager, Servicer Evaluations:Robert J Radziul, New York (1) 212-438-1051;
robert.radziul@spglobal.com

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