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Servicer Evaluation: Selene Finance L.P.

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Servicer Evaluation: Selene Finance L.P.

Ranking Overview
Subrankings
Servicing category Overall ranking Management and organization Loan administration Ranking outlook
Residential primary AVERAGE ABOVE AVERAGE AVERAGE Stable
Residential special ABOVE AVERAGE ABOVE AVERAGE ABOVE AVERAGE Stable
Financial Position
SUFFICIENT

Rationale

S&P Global Ratings' rankings on Selene Finance L.P. (Selene) are ABOVE AVERAGE and AVERAGE as a residential mortgage loan special servicer and primary (prime) servicer, respectively. On Oct. 6,2021, we affirmed the special servicer and prime servicer rankings (see "Selene Finance L.P. ABOVE AVERAGE Residential Special, AVERAGE Prime Servicer Rankings Affirmed; Ranking Outlook Stable," published Oct. 6, 2021). The ranking outlook is stable as a special servicer and as a prime servicer.

We revised the ranking outlook as a residential special servicer to stable from negative because the company reinstated its internal audit (IA) program in late 2019. The IA program was initially suspended beginning in early 2018, with subsequent testing initiated in the first quarter of 2020. Selene selected an outside firm to handle this function, developed a satisfactory audit plan, and has completed several reviews since its reintroduction.

The AVERAGE ranking for prime servicing is due to the size of Selene's prime portfolio. This portfolio has remained mainly static for more than two years, with a low level of volume, and has decreased significantly from 2017. Therefore, it is difficult to assess performance results.

Our rankings reflect:

  • An experienced team of senior and middle managers;
  • An improving training environment, which now has some limited career pathing mechanisms, with a plan to implement further enhancements in 2021, such as creating user guides and job aids for all departments;
  • A capable information technology (IT) environment that uses both vendor and proprietary applications;
  • Satisfactory levels of internal controls, which rely on multiple lines of defense for oversight of the servicing operation;
  • Well-designed complaint management processes and a satisfactory vendor management program;
  • Improvements completed in new loan boarding processes;
  • Quantitative metrics that are generally competitive with the company's peer group;
  • Sound default management practices;
  • Call center metrics that were higher than its peer group; and
  • IA and quality control (QC) reports that reflect mainly satisfactory results despite some control deficiencies in certain areas, which have been resolved or are being remediated.

Furthermore, Selene maintains a disaster recovery and business continuity plan, including response procedures to address operational disruption as a result of a pandemic event. 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.

Since our prior review (see "Servicer Evaluation: Selene Finance L.P." published March 25, 2020), the following changes and/or developments have occurred:

  • The company closed its Horsham, Pa. servicing office and opened another servicing location in Salt Lake City, as well as a corporate office in Dallas.
  • It hired many new (executive) managers and staff.
  • It re-established its IA program.
  • Vendor management transitioned many of its monitoring processes into the governance, risk, and compliance system application.
  • Increased automation in the new loan boarding department reduced manual tasks and improved efficiencies.
  • Escrow vendor complaints are now handled by the complaint management area of Selene.
  • Selene manages the real estate-owned (REO) portfolio internally versus using asset management companies.

The ranking outlook is stable as a special servicer and as a prime servicer. Management indicated that Pretium Partners LLC invested significant capital in Selene to enhance technology and processes to support planned growth. Selene also hired many new experienced managers and staff over the last 12 months and implemented certain enhancements to the organization, with others planned over the remainder of 2021. Selene should remain a competent residential special and primary servicer.

In addition to conducting an on-site meeting with servicing management, our review includes current and historical Servicer Evaluation Analytical Methodology data through June 30, 2021, as well as other supporting documentation provided by the company.

Profile

Servicer Profile
Servicer name Selene Finance L.P.
Primary servicing location Jacksonville, Fla.
Parent holding company Selene Holdings LLC.
Loan servicing system Sagent-LoanServ.

Selene, established on Oct. 1, 2007, is a direct subsidiary of Selene Holdings LLC. It initially was a captive servicer for a distressed mortgage fund but entered the third-party subservicing business in 2010. In November 2019, Pretium Partners LLC (Pretium) announced it had completed its acquisition of Selene Holdings LLC from Oaktree Capital Management L.P. and Ranieri Partners LLC.

Servicing platforms are in Houston; Jacksonville, Fla., Dallas; and Salt Lake City, of which, the latter two represent new sites. The Dallas site, when fully staffed, will serve as an operations center and as an executive office, housing corporate support functions. The new Salt Lake City office is also an operations center and also houses support functions. Selene closed its office in Horsham, Pa. in 2020. Selene provides certain ancillary services that include title work (Selene Title LLC) and a separate due diligence advisory firm (Selene Diligence LLC). Previously, the title company only performed REO work for Selene but has since expanded to other clients and expanded its functionality. Similarly, the due diligence advisory business has grown significantly over the past year.

Selene's goal is to service approximately 70,000-loans by year-end 2021. The company has approximately 24 private clients (an increase from the prior 19) for which it services performing loans (PLs), re-performing loans (RPLs), nonperforming loans (NPLs), and REO accounts. The special and prime portfolios decreased since the prior review (see table 1). This was due to the sale of a large Ginnie Mae (GNMA) mortgage servicing rights portfolio, in addition to a large servicing transfer in late 2019. Selene is averaging 15 new loan boarding transactions monthly (inclusive of flow relationships) with an approximate 50/50 split between NPLs/RPLs and performing accounts. Management indicated it is one of only two GNMA-approved, single-family master servicers and one of only three Freddie Mac aggregator servicers.

Selene is an approved Fannie Mae, Veterans Administration (VA), and U.S. Department of Agriculture (USDA) servicer; Freddie Mac servicer/special servicer/aggregator servicer; U.S. Department of Housing and Urban Development (HUD) non-supervised mortgagee (Title I and II); and an approved GNMA issuer/servicer.

Table 1

Portfolio Volume
Prime Special
Units (no.) Volume (mil. $) Units (no.) Volume (mil. $)
June 30, 2021 1,159 75.18 40,875 7,366.85
Dec. 31, 2020 1,253 82.99 32,240 5,624.71
Dec. 31, 2019 1,538 106.63 34,964 5,553.17
Dec. 31, 2018 13,712 1,180.26 67,018 13,001.52
Dec. 31, 2017 15,598 1,405.52 42,569 7,450.63

Management And Organization

The management and organization subrankings are ABOVE AVERAGE for special and primary servicing.

Organizational structure, staff, and turnover

Selene has a knowledgeable executive team with generally comparable experience at the senior and middle management levels, although senior management tenure is somewhat lower than peers.

  • Senior managers have an average of 19 years' industry experience and four years' tenure.
  • Middle management has an average of 19 years' mortgage experience and five years' tenure.
  • Management and staff turnover are 17% and 15%, respectively. Management turnover is elevated, while staff turnover is competitive when compared to peers.

With the acquisition by Pretium, Selene began to hire several new executives including a chief financial officer, chief technology officer, chief revenue officer, chief risk officer (CRO) and a chief operating officer (who oversees servicing and other business lines). Management indicated that since its acquisition by Pretium, almost 50% of staff are new to Selene with a focus on upgrading the talent base throughout the organization while concurrently identifying new personnel who were most likely to succeed with the new vision for the operation.

Training

The training area refreshed many modules in 2020-2021. The online learning management database tracks course completion. Highlights of Selene's training agenda include:

  • Forty hours of classroom and on-the-job instruction for call center positions affecting the combined customer service/collections department and loss mitigation;
  • Forty hours of required annual training for call center staff along with five hours of soft skills instruction;
  • A call behavior class that focuses on empathy and building rapport with the customer, among other items;
  • An internship program for college students, which affects call center positions, remains in place, although it was suspended due to the pandemic;
  • Testing and annual certification, as applicable;
  • An average of 21 hours of required annual compliance training; and
  • The introduction of more formal career pathing for staff in several positions.

Selene also has a significant initiative that involves partnering with a Pretium subsidiary to examine the current training environment and make recommendations for improvements. This includes developing a "train the trainer" program and implementing items such as user guides and job aids throughout the organization.

Systems and technology

Selene operates in a well-automated environment that provides an appropriate level of technology and controls.

Servicing system applications 

The technology infrastructure includes:

  • LoanServ, the primary system of record for non-default functions;
  • Selene Asset Resolution Application (SARA), a robust proprietary application that is used for various default activities and as an investor portal;
  • Selene Asset Management Information, a data warehouse that supports SARA;
  • A central system repository that tracks and retains all property valuations;
  • The vendor-provided Pyramid system, which is used to manage REOs; and
  • DocNet, an internally developed imaging system.

Selene has multiple data warehouses due to the various vendor-provided and proprietary applications. Recently, management completed Phase 1 of a project that seeks to centralize all information into one repository by approximately year-end 2021.

SARA's many features include allowing investors to access reports online (e.g., to input comments and instructions) and an automated net present value analysis that encompasses rules for third-party clients. Staff can view their own portfolios to determine accounts requiring attention, ascertain their performance data, and receive messages from managers. SARA also performs litigation, title, collateral tracking, and other default-related tasks.

Business continuity and disaster recovery 

Selene's systems recovery includes the following:

  • Encrypted back-up tapes are stored at a separate vendor.
  • The other servicing locations serve as backup sites in case of a business interruption.
  • There are two data centers, one in Houston and another in Dallas.
  • The disaster recovery plan tests different systems throughout the year. All the 2020-2021 tests indicated successful results.

Selene completes a security assessment report annually that analyzes a baseline of controls required by the National Institute of Standards and Technology (NIST). To maintain NIST requirements, Selene has a continuous monitoring process and performs additional internal and external penetration testing through an independent entity.

Selene maintains a disaster recovery and business continuity plan, including response procedures to address operational disruption as a result of a pandemic event. 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.

Cybersecurity 

  • Annual intrusion penetration testing is performed by a third-party entity (rotated annually) and there were no reported high-risk issues from the test completed in August 2020.
  • Quarterly vulnerability scans are conducted by internal staff.
  • Management completes Federal Financial Institutions Examination Council Cybersecurity Assessment Tool assessments annually.
  • Test phishing emails are sent to employees bi-annually.
Internal controls

Selene has several mechanisms in place to monitor risk within the organization. The CRO oversees the risk management organization, which includes IA, QC, compliance, quality assurance (QA) and call monitoring, and regulatory change management. An enterprise-wide governance, risk management, and compliance (GRC) system tracks all operational issues within its repository. The task administration of the GRC system includes support from its business process improvement (BPI) team, who will also assist the business units with associated timeline management and execution of remediation plans.

Policies and procedures 

Selene has satisfactory policies and procedures. The manuals indicate both the issue and revision dates for each section and are available to personnel in a centralized database. We considered the following characteristics and controls in our analysis:

  • The manuals are well-written, with a policy and procedure section for each topic, and include items such as sample screen prints, responsible parties, and exhibits.
  • Policies and procedures are updated at least annually.
  • An email reminder is automatically forwarded 30 days before the expiration date.
  • Any material changes require management, training, compliance, and possibly legal approval.
  • Email notifications alert the staff, so they are cognizant of the new policy.

Any changes to letters require approval by compliance and legal. A revision history is maintained in a separate repository.

Selene's BPI team is responsible for reviewing all upstream or downstream impacts of any changes within a business unit. This includes various functions, such as standardization of the policies and procedures, client escalations, project and change management functions related to compliance and/or investor revisions, and assisting with internal and external audit responses, among other items.

Quality assurance (and call monitoring) 

Departmental QC measures include:

  • A series of daily and monthly dashboard reports indicating statistical measures affecting the department;
  • Any exceptions to service levels noted through a color-coded scheme;
  • The department supervisor's/manager's responsibility to investigate such issues, and determine the cause of the problem and remediation;
  • Reports that detail metrics regarding associate performance;
  • Enhanced calibration sessions upon issuance of the reports that involve more discussions about findings and planned remediation of issues with the line of business; and
  • A monthly operation meeting where senior managers review the dashboard results detailing the business line's performance along with other critical operational metrics.

The QA department monitors calls of different customer contact positions, employing third-party software for scoring results. Other highlights include the following:

  • There is 100% call recording and speech analytics, although no screen capture.
  • Approximately 10 calls per customer-facing agent are monitored monthly.
  • QA scores 10 calls for each of its escrow vendors.
  • The vendors similarly score their staff and report the results to Selene's vendor management area and forward them to the QA department for further review.
  • Scorecards are maintained in a Sharepoint site, which also provides reporting.
  • The software's functionality through speech analytics was further enhanced to target specific words, issues, and behaviors used by staff.

Compliance and quality control 

Selene's suitable QC program conducts reviews (mainly monthly and quarterly) based on federal, state, investor, and company guidelines. The software vendor is employed on an overflow basis. Attributes and highlights are as follows:

  • Exceptions receive a numeric grade to identify minor, important, and serious findings.
  • The line of business (LOB) must respond to findings, generally within 10 days.
  • All responses must have a remediation plan with an expected resolution date.
  • QC staff review a sampling of workout declines and of approvals separately from what occurs in the LOB.
  • In-line QC, formerly part of the loss mitigation group, performs an initial and final review of all approvals and declines, with a target timeframe within two days of the underwriting decision. This includes a review of income calculations.

The compliance department oversees company policies and procedures and maintains responsibility for notifying servicing departments of statutory changes that may affect the operation. The following departmental processes are in place:

  • The specialist distributes regulatory bulletins via the GRC system to compliance committee members.
  • An application tracks regulatory revisions related to case law.
  • The LOB must complete the required changes no later than the regulatory requirement date. Compliance monitors the LOB's remediation progress weekly and updates the GRC system accordingly.
  • Loan-level compliance testing begins 30 days after implementation, using a customized self-assessment tool within the GRC system.
  • Test results, which are pass/fail, are distributed to the LOB and management.
  • Although IA completes the fair servicing compliance audits, compliance performs a final review of the results and relays them to the LOB.

Internal and external audits  

Though previously suspended, Selene engaged an independent accounting firm in November 2019 to re-commence IA exams of the servicing operation. The firm previously performed work for the company for technology-related audits and provided consulting services for them on a government contract. Management indicated that approximately 11 reviews were completed in 2020 with an additional eight to nine scheduled for 2021. The CRO manages the engagement, although the auditing firm reports directly to the board audit committee. Attributes of the IA program include:

  • Risk rating of the areas to identify those presenting higher risk;
  • An annual risk assessment;
  • A listing of issues and recommendations in the final report;
  • Grading of exceptions to identify severity, as well as the generic narrative grading of the report; and
  • Discussions between management and the LOB to complete a management action plan (MAP), although the formal MAP is not included in the report; and
  • Both the BPI team and compliance monitor the MAP and confirm implementation of the proposed resolution.

The 2020 Reg AB report disclosed no issues, and there were no material findings from the 2020 SSAE 18 SOC-1 report. An examination of QC reports completed in 2020 revealed opportunities for improvement in certain default areas, although these have been resolved or are in the process of remediation. Additionally, a review of internal audits reflected some higher risk findings or opportunities to improve upon internal controls within specific departments; subsequent communications with management indicated many of the affected areas already implemented remediation of the issues.

The legal department oversees litigation, complaints, title issues, contested foreclosures, and state licensing, in addition to attending mediation hearings and/or required court appearances. A dedicated staff member in the legal department coordinates with the compliance area to ensure any regulatory changes are transmitted to the affected areas.

Complaint management

The customer correspondence/executive resolution team (ERT) now reports to the executive vice president of servicing instead of the legal department; ERT handles all escalated complaints and those from regulatory entities. A separate team in the legal department handles complaints from state attorney general offices. Remaining complaints are addressed by the correspondence team. Highlights include the following:

  • All ERT staff receive a review of their responses.
  • A sampling of responses from the remaining staff, who address other correspondence, are reviewed.
  • Software used to store complaints and responses allows for tracking and root cause analysis.
  • Complaint and responses are imaged, and bulletins alert management/staff regarding trends, root cause analysis, etc.
  • A complaint/error resolution committee meets monthly to analyze results, trends, and responses.

Though not a formal process, management monitors social media complaints. Management indicated they are averaging four complaints per 10,000 loans.

Vendor management

Selene's vendor management office (VMO) helps approve and oversee its vendor relationships, including its attorney network. Contract management duties reside in the legal department. The VMO transitioned its monitoring processes into the GRC's third-party risk management module in the fourth-quarter 2019.

A formal vendor management oversight committee reviews and approves vendors. It meets monthly to discuss any issues. Highlights include the following:

  • The VMO works in tandem with other departments to develop oversight standards and tracks key performance indicators.
  • The department's risk management survey analyzes the level of oversight required of the vendor, which is based on the assigned numerical risk rating.
  • High-risk entities receive an onsite review at least annually, while moderate- to low-risk entities are reviewed by the VMO mainly every 18-24 months.
  • The VMO generally reviews vendors without the LOB to get a more objective opinion.
  • The LOB generates the scorecard and submits it to the VMO for review.

The VMO employs the services of a third-party law firm, as applicable, to perform (or to assist on) its attorney onsite or desk reviews. The LOB completes the performance scorecards. Management is currently in the process of more fully integrating the legal department into the oversight program so they can provide their own observations regarding attorney performance, as well as possibly assist in any due diligence. Firms considered higher risk based on caseload, financial, and/or legal exposure are reviewed annually.

Insurance and legal proceedings

Selene 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--Special And Primary

The loan administration subrankings are ABOVE AVERAGE and AVERAGE for special and prime servicing, respectively. Selene has sufficient geographic portfolio distribution (see table 2).

Table 2

Portfolio Distribution By State
Prime Special
Top five states Units (%) Unpaid principal balance (%) Top five states Units (%) Unpaid principal balance (%)
Georgia 12.08 12.07 Florida 15.46 14.43
Texas 9.75 7.70 New York 8.94 14.11
Florida 6.13 7.18 Georgia 7.84 5.94
Alabama 5.44 4.24 California 6.60 14.65
North Carolina 5.00 4.50 Texas 5.76 4.64
Other 61.60 64.31 Other 55.40 46.23
Total 100.00 100.00 Total 100.00 100.00
New-loan boarding

Attributes of the loan boarding process include the following:

  • Selene boards 100% of its accounts electronically.
  • A proprietary application assists with boarding most loans.
  • The department is using a new application for flow loans that will become the primary boarding application by year-end 2021 because it provides more efficiencies and better reporting capabilities.
  • The 17% document-to-system check is much less than peers, although, this is increased to a 100% sampling if the error rate is more than 25%.
  • The service released process is 100% automated.
  • Boarding an account takes an average of five days.

When performing a servicing transfer, the department requests information on pending in-flight loss mitigation. This information is reconciled at four different phases against previously reported results to ensure there are no discrepancies and is subsequently sent to the transferee for signoff during the transfer period. A post-transfer review examines the delinquency comments to determine if there was a workout in process.

Selene has portfolio managers (PMs) who serve as liaisons between their third-party clients and the company to address any questions and to communicate investor expectations and issues. The PMs monitor portfolio performance and coordinate any client changes with the business unit, IT, and other groups to ensure the revisions are completed. The PMs also visit their clients at least annually, and commonly have monthly calls with them to discuss any issues.

Payment processing

Selene has good controls in place for cash management. Features include:

  • An electronic processing rate of approximately 59%, which is much lower than its peer group;
  • Electronic access to lockbox payment rejections to research the item;
  • Bankruptcy payments processing in the department, with posting instructions sent to the staff as needed; and
  • A 6% staff turnover rate.
Investor reporting

Duties are appropriately segregated among the reporting, reconciliation, and remittance functions. Almost all of the special serviced portfolio consists of GNMA and third-party client accounts, while Fannie Mae and GNMA represent most prime accounts (see table 3). Risk management procedures that factored into our analysis are as follows:

  • The electronic reporting and remitting rate are 100%.
  • Reconciliation of custodial accounts must be completed within 30 days, with the resolution of any open items within 90 days.
  • There were minimal aged open items.
  • Previously manual account balancing functions were automated.
  • All reports and reconciliations are subject to sign-off by senior management.
  • There was no reported turnover.

Table 3

Portfolio Breakdown By Investor (%)
Investor Prime Special
Fannie Mae 36.15 3.68
Freddie Mac 0.09 10.55
Ginnie Mae 56.68 24.48
Mortgage-backed securities investor 0.00 0.00
Portfolio 0.00 0.00
Other investor 7.08 61.29
Total 100.00 100.00
Escrow administration

Approximately 94% of the special servicer portfolio has escrow accounts. Separate tax and insurance vendors handle these areas, including borrower calls. Borrower complaints, previously addressed by the vendors, are now handled by Selene's complaint management department. Escrow management processes encompass:

  • Weekly calls with both vendors to discuss issues, as well as grading monthly scorecard performance;
  • No non-reimbursable tax penalties;
  • A series of letters and/or calls to borrowers if there is a delinquent tax or unpaid insurance premium;
  • A 1.40% abandonment rate and 25-second average speed of answer (ASA) from the insurance vendor, and a 0.91% abandonment rate and 13-second ASA from the tax vendor, both of which we consider to be good metrics; and
  • A 9% turnover rate.

Presently, borrowers cannot upload insurance documents due to system limitations, although management indicated they are communicating with the system provider on implementing such an enhancement.

Mortgage reconveyance

The department uses a vendor for its lien release processing, and almost 85% of paid-off accounts are e-recorded. No penalties were assessed for failure to timely reconvey a paid-off account. The department plans to allow borrowers the ability to request a payoff quote through the interactive voice response (IVR) system by approximately third-quarter 2021.

Special loans administration

There is a dual review of input indices to validate the data's accuracy on any adjustable-rate mortgage loans. Selene performs a weekly review on the entire portfolio against the applicable website to ascertain any accounts affected by the Servicemembers Civil Relief Act.

Customer service

A combined customer service and collection call center answers borrower inquiries received by telephone, which is discussed in more detail in the default management section. The customer relations department assists with administrative tasks for the default area, which includes preparing and printing modification agreements, performing a quality review on modifications, preparing payoff quotes, and other items. There was no management or staff turnover. Approximately 75% of customers are registered website users.

Default management

Selene maintains good controls in its default area. Because it is a combined department for customer service and collections, staff can handle many different call types such as escrow and bankruptcy inquiries; this includes handling different stages of delinquency as needed. Skills-based routing directs the call to the appropriate associate. Late-stage collectors (120-plus-day delinquent accounts) serve as the single point of contact (SPOC).

The customer service and collection ASA was much higher than peers, although the abandonment rate was comparable; loss mitigation metrics were generally competitive with its peer group (see table 4).

Table 4

Average Speed Of Answer And Abandonment Rate
Average speed of answer (seconds) Abandonment rate (%)
Customer service(i) N/A N/A
Collections 119.00 6.91
Loss mitigation 94.00 5.75
(i)Customer service and collections are combined departments. N/A--Not applicable.

Special serviced and prime delinquency rates have decreased for the six-month period ending June 30, 2021 (see tables 5 and 6). The prime delinquency rate has traditionally remained elevated due to the NPLs or RPLs included in the acquisitions.

Selene's loan-loss analysis team uses a comprehensive root cause analysis to review any potential losses to ascertain why they occurred (e.g., training issue, IT issue, etc.), and looks for lost revenue opportunities.

Table 5

Prime Delinquency Rates
Year Total delinquency (%) 30-59 days delinquency (%) 60-89 days delinquency (%) 90+ days delinquency (%) Bankruptcy (%) Foreclosure (%) Real estate-owned (no.)
June 30, 2021 23.73 5.44 2.24 16.05 6.21 3.88 7
Dec. 31, 2020 28.65 7.10 2.71 18.83 6.54 4.71 1
Dec. 31, 2019 34.40 5.79 1.89 26.72 6.63 5.40 9
Dec. 31, 2018 18.68 9.12 2.05 7.50 2.37 2.16 11
Dec. 31, 2017 20.96 10.80 2.56 7.60 2.11 4.55 18

Table 6

Special Delinquency Rates
Year Total delinquency (%) 30-59 days delinquency (%) 60-89 days delinquency (%) 90+ days delinquency (%) Bankruptcy (%) Foreclosure (%) Real estate-owned (no.)
June 30, 2021 40.72 8.39 4.54 27.79 8.65 14.92 703
Dec. 31, 2020 53.53 8.44 5.17 39.92 11.67 21.21 1,283
Dec. 31, 2019 59.14 10.14 6.86 42.13 10.95 25.33 1,829
Dec. 31, 2018 37.04 6.75 2.86 27.43 5.41 15.47 2,894
Dec. 31, 2017 59.67 8.47 3.85 47.35 9.13 30.40 3,755

Management and staff experience and tenure (see table 7) were generally competitive with relevant servicers with lower tenure levels due to the significant amount of new hires. Staff turnover rates were higher than peers in collections and loss mitigation, while similar in the remaining areas. Management turnover was elevated in collections, loss mitigation, and REO. Management indicated that the elevated turnover was due to the expanded performance expectations associated with the change in ownership (and concurrently, new management), which resulted in a higher number of managers leaving the organization.

Table 7

Experience And Tenure
Management Staff
Avg. industry experience (years) Avg. present employer experience (years) Turnover rate (%) Avg. industry experience (years) Avg. present employer experience (years) Turnover rate (%)
Collection 12.00 2.00 20.00 9.00 2.00 25.00
Loss mitigation 19.00 4.00 36.00 16.00 5.00 20.00
Foreclosure 18.00 2.00 0.00 13.00 5.00 9.00
Bankruptcy 11.00 0.41 0.00 14.00 3.00 8.00
Real estate-owned 18.00 6.00 25.00 18.00 5.00 8.00
Collections

Bar-coding technology helps determine when a payment was sent by the borrower. Management previously employed a vendor to assist with call volume; the nature of the relationship changed to more of a staffing model and Selene considers them to be contractors employed by the company versus vendor employees. Selene's collection methodology includes:

  • Call-back technology through the IVR system;
  • Contact initiated as early as the third day of delinquency for high-risk accounts;
  • Supervisors in the LOB monitor five calls per associate, providing verbal feedback;
  • A risk-behavior model that analyzes various characteristics, including payment history, to determine when to contact the mortgagor during the month;
  • A best-time-to-call algorithm that assists with customer contact; and
  • Promise-to-pay success rates of 62% and 65% for accounts 30-plus-days and 60-plus-days delinquent, respectively, which are both similar to its peer group.
Loss mitigation

Selene participates in many different loss mitigation programs and performs various workout options for its borrowers (see table 8). Many of the loans in the "other" bucket represent different workout types such as write offs, loan sales, modification (deferrals), reinstatements, and conveyances.

Table 8

Loss Mitigation Breakdown (%)
Resolution type Prime Special
Deed-in-lieu 0.00 0.14
Short sale 0.00 1.04
Repayment plan 0.00 0.00
Modification 5.88 32.53
Forbearance plan 27.45 23.21
Other 66.67 43.08
Total 100.00 100.00

The department assigns a SPOC upon boarding for special serviced assets, and at the 45th day of delinquency for any other accounts. SPOCs handle all investor types. The effective workout methodology includes the following:

  • Borrowers may obtain the status of their modification through the IVR and download a workout package from the website.
  • Assuming the SPOC is unavailable, there is an option to transfer to another SPOC team member.
  • Calls are routed to the assigned SPOC if it is a recognized telephone number and borrowers can leave a voicemail with their SPOC, which must be returned within 24 hours.
  • A letter is sent to the customer upon SPOC reassignment notifying them of the new contact.
  • Supervisors monitor five calls per agent, providing verbal feedback.
  • The department uses mobile notary services as applicable for document execution.

Management still plans to implement a website enhancement in the future that will allow borrowers to upload documents directly through the site versus emailing them to their SPOC and obtain the status of their workout request. We have observed that many other special servicers ranked by S&P Global already have this functionality.

Foreclosure and bankruptcy

A foreclosure committee reviews accounts to verify that all required actions were completed. Contested files are handled by a separate team that coordinates actions with in-house counsel. The department reorganized to be functionally (process) divided versus the prior approach that involved staff handling accounts from referral to sale. Selene's foreclosure processes include:

  • A foreclosure dashboard that shows exceptions requiring review;
  • An electronic foreclosure approval referral process and automated bidding method based on investor/agency guidelines;
  • A group that monitors each foreclosure team to ensure all process milestones/timelines are completed and there are no aged legal actions;
  • A 70% foreclosure cure rate for special serviced accounts; and
  • A monthly system-generated scorecard that assists in grading attorney performance.

Beginning in the fourth-quarter 2020, Selene retained an outside vendor to perform certain bankruptcy tasks (e.g., referral to attorneys, bankruptcy setup, etc.) with internal staff overseeing their performance and handling other related items. Staff are segmented according to process rather than bankruptcy chapter. Bankruptcy processes include the following:

  • The attorneys handle proof-of-claim preparation and filings, and a vendor performs another review of the documents before they are filed with the court.
  • There is electronic access to bankruptcy case statuses and new filings.
  • An escrow analysis is completed on bankrupt loans to mitigate potential large shortages in the account.
  • The cashiering area processes bankruptcy payments and a bankruptcy specialist sends instructions indicating how to apply the funds as applicable.
  • A separate application is used to obtain payment ledgers for posting trustee payments.
  • A document execution team reviews foreclosure affidavits, which then undergo another QC review by an officer before being signed in the presence of a notary.
  • The 7% proof of claim rejection rate is much higher than peers.

Selene orders a broker's price opinion (BPO) on every account that is at least 60 days delinquent and each BPO is scored for accuracy after it is reconciled internally.

Real estate-owned

Most REO loans are managed internally when before three asset management companies were used. Scorecard grading assesses both vendor and agent performance. A contract employee performs onsite property inspections mainly to review repairs, meet the agent, and examine property conditions. Selene cited the following statistics and controls in its REO process:

  • Financial incentives encourage the borrower to vacate the premises, including offers of relocation assistance.
  • There is a dedicated repair management team.
  • There is a quality review on 5%-10% of liquidations to ensure Selene adhered to required marketing mechanisms and controls during the REO process.
  • There is also a 10% QC of repairs completed, marketing plans, etc., on its REO portfolio.
  • Auctions are employed mainly on occupied properties and in certain other instances.
  • The average marketing time for special serviced loans is 287 days and gross and net proceeds-to-market value averages are 107% and 97%, respectively.

Financial Position

The financial position is SUFFICIENT.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Steven L Frie, New York + 1 (212) 438 2458;
steven.frie@spglobal.com
Secondary Contact:Jason Riche, Dallas + 1 (214) 468 3495;
jason.riche@spglobal.com
Analytical Manager, Servicer Evaluations:Robert J Radziul, New York + 1 (212) 438 1051;
robert.radziul@spglobal.com

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