Ranking overview
		Subrankings
Servicing category	Overall ranking	Management and organization	Loan administration	Ranking overview
Commercial mortgage loan primary	STRONG	STRONG	STRONG	Stable
Commercial mortgage loan master	STRONG	STRONG	STRONG	Stable
Commercial mortgage loan special	ABOVE AVERAGE	STRONG	ABOVE AVERAGE	Stable
Financial position
SUFFICIENT

Rationale

S&P Global Ratings' rankings on Wells Fargo Commercial Mortgage Servicing (WFCMS) are STRONG as a commercial mortgage loan primary and master servicer, and ABOVE AVERAGE as a commercial mortgage loan special servicer. On Aug. 23, 2023, we affirmed the rankings (see "Wells Fargo Commercial Mortgage Servicing Rankings Affirmed; Ranking Outlooks Stable," published Aug. 23, 2023). We have a stable ranking outlook on each of the rankings.

Our rankings reflect WFCMS's:

• Highly experienced and well-tenured domestic servicing personnel;
• Strong audit, compliance, and control environment;
• Robust systems and technology;
• Well-documented and comprehensive policies and procedures across its servicing functions;
• Efficient and substantial platform that benefits from its captive subsidiary's (Wells Fargo India [WFI]) offshore support;
• Proactive master servicer oversight of subservicing operations;
• Diverse property types in its primary and master servicing portfolio, accompanied by strong geographic and investor diversity; and
• Substantial institutional commitment to the servicing platform and the commercial mortgage-backed securities (CMBS) business, accompanied by financial backing and shared resources provided by Wells Fargo Bank N.A. (Wells Fargo).

Since our prior review (see "Servicer Evaluation: Wells Fargo Commercial Mortgage Servicing," published Nov. 15, 2021), the following changes and/or developments have occurred:

• WFCMS remains one of the largest primary and master commercial mortgage servicers of U.S. collateral with a portfolio of approximately $585 billion. However, overall portfolio growth has been stagnant in recent years and, since our last review, the number of primary/master serviced loans decreased 12.5%, while the unpaid principal balance (UPB) declined 3.0%.
• In April 2023, WFCMS reorganized its reporting lines within the asset management group, with 90 asset managers moving from the commercial mortgage servicing reporting line to the loan origination line, which will improve consistency and accountability for post-close portfolio management across WFCMS' commercial real estate business.
• Since our last report, WFCMS has continued to promote and add experienced staff where needed including: head of CMBS asset management, external head of controls, senior operations manager for cash management, development officer, and head of customized portfolio services.
• In late 2021, the company relocated the Charlotte, N.C. office from the Three Wells Fargo building to the Duke Energy Center building approximately two blocks away.
• WFCMS is in the process of testing and shadow posting into Strategy version 20, with plans to upgrade from version 19F by late-summer 2023.
• The company now maintains a hybrid work schedule, which allows generally all employees to work from home one day per week of their choosing.

The ranking outlook is stable for each of the rankings. As we move through what is expected to be an increase in delinquencies and defaulted loans, we believe management will continue to effectively provide leadership and staffing necessary to oversee WFCMS' substantial commercial real estate loan portfolio while maintaining the highest servicing standards. Further, we expect the company will continue to update its various systems and increase automation within its operations and will remain a highly effective servicer across all the portfolios it services.

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, 2023, as well as other supporting documentation provided by the company.

Profile

Servicer profile
Servicer name	Wells Fargo Commercial Mortgage Servicing
Primary servicing locations	Charlotte, N.C.; Concord, Calif.; and Hyderabad, India
Parent holding company	Wells Fargo Commercial Mortgage Servicing is a division of Wells Fargo Bank N.A.
Loan servicing system	Strategy v.19F; CAMS

WFCMS is a line of business within Wells Fargo. It performs commercial mortgage primary, master, and special servicing functions for CMBS (and to a lesser extent, commercial real estate collateralized loan obligation [CRE-CLO] loans); mortgage-backed securities conforming to a government-sponsored enterprise (GSE); balance sheet loans; interim loans; warehouse loans; and secondary market loans, whole loans, and loan pools serviced under the U.S. Department of Housing and Urban Development (HUD) and Federal Housing Administration (FHA) guidelines. Additionally, through its customized portfolio services group, it provides servicing and asset management services for 61 lender clients as of Dec. 31, 2022.

WFCMS' scope of services provided includes payment and escrow processing, cash and treasury management, asset management, investor reporting, and collateral administration. In its servicing roles, WFCMS also provides asset information, various industry standard reports, surveillance, watch-list, loss mitigation, and default resolution assistance to the end investor.

With a portfolio just under $585 billion, WFCMS is the second largest primary commercial servicer and the third largest master commercial mortgage servicer of U.S. collateral. It held the top position as a Freddie Mac K master deal servicer, and Freddie Mac K special servicer, and was the fourth largest Fannie Mae servicer. Additionally, as of June 30, 2023, WFCMS was the appointed special servicer on an aggregate of 172 securitized transactions of CMBS, Freddie Mac K series, and CRE-CLO products, which contain approximately 3,000 loans aggregating $101 billion of UPB. As of the same date, WFCMS managed an active special servicing portfolio of $5.7 billion in UPB.

Based primarily in Charlotte, WFCMS also conducts various aspects of its business operations in San Francisco and Concord, Calif.; McLean, Va.; Bethesda, Md.; Dallas; New York City; Hyderabad and Bengaluru, India; and several additional satellite locations. As of June 30, 2023, the WFCMS staff totaled 816 full-time employees, including 383 in its operations of WFI across Hyderabad and Bengaluru.

WFCMS leverages WFI to handle critical processes such as account reconciliations, investor reporting, reserves, new loan set-up, insurance, payoffs, cash administration, taxes, escrow analysis, cash management, and reconveyance. Other servicing processes involve several WFI team members as well. WFCMS has several meetings each week with WFI senior leadership, and team managers have daily meetings to understand any challenges and adjust production workflows as appropriate to minimize risk to the portfolio.

Table 1

Total servicing portfolio
	UPB (mil. $)	YOY change (%)(i)	No. of assets	YOY change (%)(i)	No. of staff	YOY change (%)(i)
Primary/master servicing
June 30, 2023	584,786.2	(2.5)	26,374	(4.0)	800	(9.5)
Dec. 31, 2022	599,960.0	(3.1)	27,480	(10.7)	884	(3.1)
Dec. 31, 2021	619,349.9	2.9	30,771	0.8	912	(2.4)
Dec. 31, 2020	601,818.5	1.3	30,536	(1.3)	934	4.5
Dec. 31, 2019	594,165.8	4.3	30,931	1.5	894	(3.2)
Special servicing
June 30, 2023	5,669.7	62.5	21	40.0	16	(5.9)
Dec. 31, 2022	3,489.1	261.5	15	25.0	17	(5.6)
Dec. 31, 2021	965.3	(75.4)	12	(57.1)	18	28.6
Dec. 31, 2020	3,925.4	390.6	28	211.1	14	0.0
Dec. 31, 2019	800.1	95.6	9	(73.5)	14	(22.2)
(i)June 30, 2023 YOY change based on the prior year end. YOY--Year-over-year. UPB--Unpaid principal balance.

Table 2

Portfolio Overview
	June 30, 2023		Dec. 31, 2022		Dec. 31, 2021		Dec. 31, 2020		Dec. 31, 2019
	UPB (mil. $)	No.	UPB (mil. $)	No.	UPB (mil. $)	No.	UPB (mil. $)	No.	UPB (mil. $)	No.
Primary loans	454,429.3	20,293	465,666.6	21,079	476,946.3	22,794	462,050.4	23,698	463,728.0	24,279
Master (SBO) loans	130,356.9	6,081	134,293.5	6,401	142,403.6	7,977	139,768.1	6,838	130,437.8	6,652
Total servicing	584,786.2	26,374	599,960.0	27,480	619,349.9	30,771	601,818.5	30,536	594,165.8	30,931
Average loan size	22.2	--	21.8	--	20.1	--	19.7	--	19.2	--
Special servicing
Loans	5,669.7	21	3,489.1	15	965.3	12	3,925.4	28	799.6	8
REO properties	0.0	0	0.0	0	0.0	0	0.0	0	0.4	1
Total special servicing	5,669.7	21	3,489.1	15	965.3	12	3,925.4	28	800.1	9
Totals may not add due to rounding. SBO--Serviced by others. REO--Real estate owned. UPB--Unpaid principal balance.

The servicer's primary/master serviced U.S. portfolio, which consists of over 26,000 loans, is broadly diversified by property type. The largest UPB concentrations of loans are in the multifamily (33.9%), office (20.7%), retail (13.7%), and lodging (8.7%) asset classes (see table 3). Geographic distribution spans across the U.S., as well as in U.S. territories, with the greatest portfolio UPB concentrations in New York (20.3%), California (14.6%), and Texas (7.9%).

With respect to investor type, the portfolio UPB is heavily weighted toward securitized products, including CMBS (55.6%), and Freddie Mac K-series (19.2%), with Fannie Mae (7.5%) and warehouse loans (7.2%) comprising most of the balance (see table 4).

Table 3

Primary/master portfolio breakdown by property type and state(i)
	UPB (mil. $)	UPB (%)	No. of properties	Properties (%)
Type
Multifamily	198,153.4	33.9	10,407	34.5
Office	120,971.2	20.7	3,093	10.2
Retail	80,181.2	13.7	5,685	18.8
Lodging	50,675.3	8.7	2,769	9.2
Mixed-use	50,534.6	8.6	2,164	7.2
All other	84,270.6	14.4	6,070	20.1
Total	584,786.2	100.0	30,188	100.0
State
N.Y.	118,494.3	20.3	2,245	7.4
Calif.	85,534.2	14.6	4,357	14.4
Texas	46,274.5	7.9	3,185	10.6
Fla.	40,621.0	6.9	2,179	7.2
Ga.	19,028.5	3.3	1,229	4.1
All other	274,833.7	47.0	16,993	56.3
Total	584,786.2	100.0	30,188	100.0
Totals may not add due to rounding. (i)As of Jun. 30, 2023. UPB--Unpaid principal balance.

Table 4

Primary/master portfolio by investor product type(i)
Loan type	UPB (mil. $)	UPB (%)	Loan count	Loan (%)
CMBS/CDO/ABS	325,009.9	55.6	14,797	56.1
Freddie Mac K-series	112,406.3	19.2	4,970	18.8
Fannie Mae	43,860.0	7.5	2,510	9.5
Warehouse/held for sale	42,028.9	7.2	1,827	6.9
Contained in a CRE CDO/CRE CLO	25,580.6	4.4	787	3.0
On own or parent's balance sheet	23,032.7	3.9	685	2.6
FHA and Ginnie Mae	7,142.2	1.2	570	2.2
Freddie Mac	5,059.7	0.9	197	0.7
Other third-party investors	468.8	0.1	22	0.1
Life insurance companies	197.2	0.0	9	0.0
Total	584,786.2	100.0	26,374	100.0
Totals may not add due to rounding. (i)As of June 30, 2023. UPB--Unpaid principal balance. CRE CDO--Commercial real estate collateralized debt obligation. FHA--Federal Housing Administration.

Management And Organization

The management and organization subrankings are STRONG for commercial mortgage loan primary, master, and special servicing.

Organizational structure, staff, and turnover

The head of commercial mortgage servicing (who has been in his current position for 10 years bringing more than 25 years of industry experience), has four long-tenured executive direct reports, including the head of customer relationship management, the managing director (MD) of loan servicing, the managing director (MD) of asset management, and the chief administrative officer.

The MD of loan servicing heads servicing operations, including investor reporting and accounting, client solutions, and operational functions in Charlotte and Concord. The MD of asset management is responsible for all asset management functions, including special servicing. Additionally, the operational area manager in India (located in Bangalore-while running three work shifts in India) at WFI reports to the CFO of the bank but also has a dotted line reporting relationship to the head of commercial mortgage servicing.

Since our last report, WFCMS has continued to promote and add experienced staff where needed including the below:

• In March 2023, the company hired an external head of CRE controls who has more than 30 years of experience from a competitor.
• In September 2022, an experienced employee rejoined the company as the senior operations manager running cash management, which is a promotion from his previous position.
• In July 2022, a GSE asset manager was promoted to a new development officer position within the DEI talent development group.
• In April 2022, an experienced asset manager with more than 20 years' experience, was promoted to head of customized portfolio services assuming the position after the prior head retired.
• In late 2021, an internal candidate (who had been with the company for more than 17 years) was promoted to head of CMBS asset management after the retirement of the previous manager.

Each functional area has direct report managers in the U.S., as well as offshore managers. The offshore managers generally have dotted-line reporting relationships to U.S. managers but also directly report to the senior executive responsible for the WFI commercial real estate operations, including commercial mortgage servicing. Overall, WFCMS' management team and staff exhibit significant levels of industry experience while tenure levels are relatively lengthy across the board. We recognize the more modest experience levels for offshore-based staff (see table 5) as an industry-wide characteristic of offshoring. We believe this is mitigated by solid controls over the offshore operation accompanied by substantial operating leverage provided by the staff.

As previously mentioned, in early 2023, WFCMS moved the reporting lines of 90 asset managers from commercial mortgage servicing to the loan origination lines of business. Management stated this action was driven by strategic changes and helps maintain consistency with their India counterparts who they leverage across the commercial real estate business lines. These GSE, non-K loans and balance sheet asset management groups and their teams gained some team leaders, but still report up through the aforementioned senior leaders.

Table 5

Years of industry experience/company tenure(i)
	Senior managers		Middle managers		Asset managers		Staff
	Industry experience	Company tenure	Industry experience	Company tenure	Industry experience	Company tenure	Industry experience	Company tenure
Primary/master - onshore	31	21	25	17	N/A	N/A	18	10
Primary/master - offshore (India)	16	7	10	7	N/A	N/A	4	4
Special	31	24	32	11	21	14	16	11
(i)As of June 30, 2023. N/A--Not applicable.

Table 6

Wells Fargo Commercial Mortgage Servicing organization by location(i)
Location	No. of full-time employees
Charlotte, N.C.	373
San Francisco/Concord, Calif.	76
McLean, Va./Bethesda, Md.	38
New York City	22
Texas	5
Other states/remote	18
Hyderabad, India/Bengaluru, India	379
Total	911
(i)As of March 31, 2023.

In the first half of 2023, onshore employee turnover at the primary/master servicing level totaled approximately 20.6%. Annual onshore turnover for 2022 was 22.5%. Although a bit elevated during 2022, we consider WFCMS' primary/master servicing onshore levels of turnover to be generally in line with the industry. Offshore primary/master servicing turnover levels were 9.9% for the first half of 2023. Annual offshore turnover for 2022 was 28.3% due to the market offering increased competition.

For special servicing the onshore first half 2023 turnover is 7.7%, which overall is generally in-line to ranked peers. For the year 2022, onshore special servicing turnover was 14.3%. There was no offshore turnover in the first half of 2023 or in 2022.

There has been a continued focus on offshoring responsibilities to WFI during the past several years. Offshore full-time employees grew 3.5% since June 30, 2021, to a total of 383 compared with 370 at our last review. Table 6 provides a geographic snapshot of the WFCMS organization as of March 31, 2023.

Training

WFCMS provides its management and staff with a diversified array of ongoing, formal internal and external training programs, which is typical of similarly sized peers. WFCMS targets 40 hours per employee annually for all servicing personnel. This includes annual risk and compliance courses, and additional curriculum assigned by the WFCMS chief administrative officer which is tailored to the experience and tenure of the staff member and their respective job functions. Other training features considered in our assessment include:

• WFCMS's leadership holds prominent roles in various industry trade groups, with the company supporting attendance at conferences, industry trainings and encouraging their staff to obtain the certified commercial mortgage servicer (CCMS) accreditation.
• The business initiatives group, in partnership with the learning and development organization, is responsible for the WFCMS training program and the further development of training for asset management, servicing teams, and cash management team members at all levels.
• In the first half of 2023, primary/master servicing employees averaged 16 hours of training and special servicing employees averaged approximately nine hours. During 2022, primary/master servicing employees averaged 36 hours of training and special servicing employees averaged approximately 33 hours, missing the stated company goal in each case.
• Training hours are tracked through the internal "Develop You" system.
• More than 800 training courses are offered through an internally developed curriculum as well as in collaboration with external training providers. Additionally, WFCMS regularly hosts and participates in industry-wide summits, panels, and conferences covering a wide range of commercial mortgage-related topics, which provide training opportunities.
• In 2022, WFCMS continued its Mentoring Circles Branch of the Wells Fargo Mentoring Program, which focuses on long-term individual career goals. Its purpose is to develop leadership skills, improve critical thinking, build meaningful relationships, and enhance social intelligence. Twenty-four CMS employees participated as mentees.
• During performance reviews, unit managers assess whether employees would benefit from additional training relative to their job description.
• Wells Fargo's talent management system is housed in "Workday", wherein managers rate individuals according to performance in the current role and perceived ability to progress through the organization.
• The talent management system also identifies projected high-potential candidates and plans internal succession.

The Wells Fargo CRE risk management team maintains and oversees compliance and risk management programs, including training, across all of Wells Fargo:

• The CRE risk management team, and their staff of approximately 2,500 people, are responsible for several key activities associated with regulatory and bank compliance for all WFCMS business groups, including training development and delivery.
• CRE risk management oversees curriculum development and tracks all training courses required and completed by each employee.
• All team members are also required to take an annual Code of Ethics web-based course, of which completion is monitored by WFCMS senior management and CRE risk management.
• A bank-supported internal learning management system maintains all training records and provides detailed management reports.

Systems and technology

WFCMS has comprehensive technology to meet its primary, master, and special servicing requirements. The company continues to focus on technology enhancement projects to further streamline and automate servicing tasks across various loan administration functions. WFCMS also has well-designed data backup routines and disaster recovery preparedness.

Servicing system applications 

WFCMS utilizes a comprehensive and wide variety of key applications and systems within its servicing and asset management platforms. Table 7 provides a summary of the key applications.

Table 7

Wells Fargo Commercial Mortgage Servicing applications
Key applications	Description
McCracken Strategy v.19F	Loan accounting and property data system of record.
C3	Financial and operating statements spreading application into CMBS IRP reporting format.
CMSView	Borrower, rating agency, investor information portal.
RLM	Waterfall accounting administration.
CAMS	Loan and real-estate acquisition, workout and reporting system that supports distressed asset portfolios.
CATS	Provides transaction-level tracking for calls and emails.
Cash workflow	Workflow application supporting cash disbursements.
Inspections	Workflow application supporting the request, tracking and fulfillment of inspections.
Letter Factory	Automation-driven correspondence engine supporting creation, imaging integration and fulfillment delivery across multiple business processes.
ReportCentral	Reporting portal providing access to platform reporting and data analytics.
CBAM	Tracks transactions for reserves and asset administration related to consent and assumption requests.
iReport	Provides tracking and configuration for watch list and risk reporting as well as all aspects of IRP reporting.
CMS Annual Compliance Tracking System	Tracks annual compliance letters and certification of pools serviced.
CMS Insurance	Provides tracking of insurance renewal, insurance disbursements, as well as other insurance transaction tracking types.
CMG Insurance	Workflow application supporting the various required insurance business processes for loans.
Reserve Tracking Database	Provides transactional tracking for all reserve requests received for loans.
CMG Payoffs	Workflow application supporting the tracking of payoff requests for loans.
Data Warehouse	Oracle database that is the aggregator for CMBS data.
NLS Loan Tracking	Tracks new loans through the pipeline for the new loan setup process providing an audit trail.
Annex A	Supports the upload and definition of deal information.
Special Servicer Loan Transfers	Provides tracking of loans that have been sent to the special servicer for resolution.
CoreLogic (E)	Supports the tax payment files, contract information, tax research, parcel information and verifications.
CIRIS	Generates the CMBS monthly reports required for investor reporting for loans in the serviced portfolio.
Construction Loans - GNMA pool reporting	Custom program in Strategy Month End Processing to update as advances are done, so GNMA pool reporting is updated appropriately.
Bank recon/ outstanding checks	Custom program within Strategy Green Screen menus to monitor and track outstanding checks.
iLien/CT Lien	This CT Lien vendor tool is used for UCC - new filings, changes, continuations & terminations.
Oracle GL	This application is Wells Fargo's financial book of record.
FileNet	Document image center for loan documents, correspondence, tax, insurance, reserves and financial statements.
ART	Asset Rating Tool; A risk rating system that captures data from Basel/risk rating required activities.
MDPS/CT Lien	Mortgage Document Processing System (MDPS) allows users to process their lien releases on-line and auto-dispatches the forms to all 3,700 jurisdictions and follows up on each recording until it is returned and imaged.
Doc Central	Supports image onboarding, attribution, splitting, and FileNet integration for imaging requirements on the CMS platform.
Salesforce	Salesforce.com is an enterprise solution which provides companies with an interface for typical and extended customer relationship management (CRM), case/incident and task management.

Additionally, WFCMS uses eight robots (BOTS) that perform Uniform Commercial Code (UCC) filing processes and assist with various data spreading task automations. There are four BOTS, out of the above mentioned eight, that perform rent roll analysis. BOTS matrices are reviewed with managers for annual certifications and documented by the WFI and Philippines teams. The BOTS matrices are updated throughout the year based on changes with new applications, roles and procedure updates.

Highlights of the wide variety of key applications and systems considered in our assessment include the following:

• WFCMS uses Strategy version 19F as their system of record. The company is working on implementing version 20 with a planned completion date in late summer 2023. The servicing system is hosted by McCracken in its Boston data center.
• WFCMS' special servicing group utilizes the Real Insight Commercial Asset Management System (CAMS). CAMS is a full function loan and real estate acquisition, management, workout and reporting system supporting performing and distressed/troubled asset portfolios.
• CAMS provides data, tools, and features that assist asset managers in managing their assets. CAMS also provides senior management real-time oversight and control features to facilitate compliance with all requirements and guidelines, as well as optimization of resolution activity.
• Report Central replaced Reportgen for utilization as a reporting portal for data analytics.
• Credit Bridge Asset Management (CBAM) is used in master servicing for consent requests and tracks and monitors GSE loans for compliance.

Business continuity and disaster recovery 

WFCMS maintains thorough data backup, business resumption, and disaster recovery plans and protocols for its servicing operations. Features considered in our assessment include:

• Servicing data is backed up and stored off-site daily. The company has a four-hour target for recovery of cash processing and investor reporting.
• Planned technology disaster recovery is tested annually with the most recent successful test in April 2023 with no issues.
• The primary servicing data center is suitably distant from the main office in North Carolina, and the business continuity data center is in Alabama.
• The most recent business continuity testing for its Strategy servicing system was performed in June 2023 with no material issues.
• The most recent business continuity recovery simulation test was conducted in September 2022 with no significant issues noted.

Cybersecurity 

Wells Fargo has established practices to manage cybersecurity risks. It employs extensive enterprise security controls pertaining access to its systems and data including, least privilege access, frequent password updates along with complexity requirements, multifactor authentication for remote access, etc. Other features considered in our assessment include the following:

• During 2022, the company added two-factor authentication for all system log ins, added additional data encryption and data masking to their systems, and completed a SQL server upgrade.
• The Enterprise information security (EIS) unit within the bank is responsible for enterprise framework, design, and oversight. It developed the information security program to maintain compliance with legal, regulatory, and contractual obligations for any party with access to Wells Fargo's networks, infrastructure, equipment, or facilities housing confidential or restricted information.
• The company developed a cloud security strategy and defined a proprietary cloud security control framework based on industry known sources that apply to all cloud computing service models. The framework is continuously refined to adapt to evolving threats and emerging regulations. Cloud service providers are required to adhere to the Wells Fargo cloud security control framework.
• The EIS cyber threat management team provides threat and vulnerability management and intrusion detection policies and best practices. This team is responsible for leading enterprise-wide efforts to reduce Wells Fargo's exposure to cyberattacks through 24/7 monitoring, analysis, and assessing the internal and external threat landscape. They use various evaluation tools to measure how well cybersecurity practices are integrated into Wells Fargo's overall risk management practices.
• All WFI employees in India currently use virtual desktop interfaces (VDI).
• In 2022, WFCMS eliminated all laptops in the U.S. by bringing VDI to offices with remote access to reduce costs, laptop inventory and to help inhibit hacking and malware attempts.
• The company uses Microsoft Teams as their collaboration tool with 216,000 enabled users to date, retiring the use of Skype.
• Land-line telephones have been largely eliminated and replaced with "soft" phone VDI's through Cisco Jabber. A very limited number of people in Charlotte and McLean have both Jabber and land lines. Three to four months after the switch was made in New York City, due to reception issues, those employees were transferred back to land lines.
• EIS provides an automated password service allowing team members to change passwords and unlock accounts on supported computer systems.
• WFCMS routinely sends phishing emails to employees to test compliance with their cybersecurity training. System penetration testing is also addressed on a routine basis.
• The security-monitoring program is performed by both Wells Fargo and vetted, third-party security specialists. As part of the program, both automated and manual testing is conducted at least annually, depending on scope and risk. The monitoring program includes vulnerability scanning, web-application testing, and penetration testing.

Internal controls

WFCMS' risk management efforts, including its system of controls and governance processes, demonstrate a comprehensive and sound approach to maintaining a controlled servicing environment. Factors considered in our assessment are noted below.

Policies and procedures 

WFCMS maintains an extensive policies and procedures (PnP) manual covering primary, master, and special servicing functions. The content is continually updated, and various process owners formally review and date changes.

• The PnP focus is on CMBS loans given their prominence in the portfolio. Nonetheless, many of the same PnP's fundamentally apply to all servicing portfolios, and all aspects of commercial mortgage servicing operations and processes are addressed at a high level.
• Procedural guidelines and clarifying text are available via desktop reference documents and policy supplements, which are hyperlinked throughout the documents.
• PnP documents are available to all staff via the CMS OpenText Portal.

Quality assurance 

WFCMS practices operational risk management through three lines of defense. The first line includes all business groups and certain activities of enterprise functions. In its course of business activities, the first line identifies, measures, assesses, manages, controls, monitors, and reports on risk associated with its business activities.

The second line of defense is Wells Fargo's independent risk management team (IRM) which reports up through the chief risk officer. This team establishes and maintains the company's risk management framework and provides oversight, including independent assessment of the front lines' execution of its risk management responsibilities. Independent challenge is provided by this IRM group, which contains both compliance and operational risk partners.

Internal and external audits 

The third line of defense is Wells Fargo's internal audit department. Key aspects of WFCMS' internal audit process considered in our assessment include:

• Internal audits are initiated at the corporate level by Wells Fargo and are conducted by personnel who report independently to Wells Fargo's board of directors.
• Audits are conducted on specific functional areas, including operations, cash management, and asset management/relationship management. The audit frequency depends on the type of audit and the risk rating. More frequent audits may be necessary based on regulatory requirements, prior results, other considerations.
• Audits independently evaluate the effectiveness of risk management, control, and governance processes and activities.
• All recommended remedial assignments are entered into the company's corrective actions database for resolution tracking.

Internal audit uses a three-tier audit rating scale (effective, needs improvement, and weak). In 2022 there were two WFCMS operational audit reviews over various areas for the loan servicing team and they each received an effective rating per management. Its scope included testing key controls associated with money movement, loan set-up, loan payoffs and real estate taxes. The audits had one low and one moderate finding which were subsequently remediated per management.

During 2022, WFCMS underwent 24 distinct audits and reviews, including 19 with an operational focus and five with a regulatory emphasis. Per management, all of these WFCMS examinations were rated effective.

In 2023, the business expects to participate in 26 reviews from internal and external parties. Of those mentioned; six reviews have been completed to date, another twenty are scheduled by year-end 2023.

Freddie Mac assesses the company annually, with the last limited review completed in April 2022. Management stated the results were "satisfactory" with minor findings, with none being significant.

The most recent Fannie Mae assessment was in September 2021. Management stated the results were good without any issues. The next assessment is planned for September 2023.

The 2022 HUD audit was completed in Spring 2023. The recertification was completed with no findings and an Effective rating per management. Management also reported the recent Ginnie Mae audit testing concluded in March 2021 with no findings.

WFCMS uses the Regulation AB (RegAB) audit standard across the entire platform and it uses a control matrix to ensure controls are documented for all servicing criteria associated with RegAB. Attestation letters dated in February 2023 from their third-party auditor each cited no material exceptions in 2022 within its primary, master, and special servicing areas.

Vendor management

Wells Fargo has an established third-party risk management program (TPRMP) that uses a risk-based approach to determine the scope, method, and frequency for monitoring third-party service providers. Notable features considered in our assessment include:

• The TPRMP reviews and assesses third parties before engagement and throughout the third-party relationship, using risk assessments at intervals driven by the services provided. Third-party employees are required to adhere to applicable corporate standards.
• A very limited number of vendors have access to their servicing system, and only if necessary. If they have access, it's limited to only those screens needed for their job.
• These standards apply to vendors and all non-employees located outside of the U.S. who have access to company and consumer information for purposes of delivering services to or on behalf of Wells Fargo.
• As part of this compliance obligation, contracts are in place with each third party, which include confidentiality language, nondisclosure agreements, and other security provisions. Wells Fargo also reserves the right to audit third-party service providers (and their subcontractors) as needed to monitor risk and performance.

Insurance and legal proceedings

WFCMS 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 Servicing

The loan administration subranking is STRONG for commercial mortgage loan primary servicing.

Portfolio dollar volume modestly decreased 0.6% from June 30, 2021, the time of our last review, with a 13.7% growth in average loan size despite a declining loan volume of approximately 12.4% during this period. Management reported the company is again bidding on new third-party servicing which had slowed due to management's perception of risk and discussions of possible necessary mitigation factors associated with LIBOR transition issues. The WFCMS portfolio includes 22.4% by UPB and 21.6% (by loan count) of adjustable-rate loans. The company has since become more comfortable with the transition process (LIBOR to SOFR interest rate change).

Within its primary serviced portfolio, WFCMS reported a June 30, 2023, delinquency level of 4.0%, which is an increase from 2022, but decrease from the onset of the pandemic. Compared to peers the overall delinquency rate is somewhat greater for their retail, office, and lodging loans. We note that compared to peers, WFCMS has a greater percentage of office and retail loans, and a higher percentage of CMBS loans (particularly conduit loans), which have all experienced relatively higher delinquency rates (see table 8).

Table 8

Primary servicing portfolio
	June 30, 2023		Dec. 31, 2022		Dec. 31, 2021		Dec. 31, 2020		Dec. 31, 2019
	UPB (mil. $)	No.	UPB (mil. $)	No.	UPB (mil. $)	No.	UPB (mil. $)	No.	UPB (mil. $)	No.
Primary loans	454,429.3	20,293	465,666.6	21,079	476,946.3	22,794	462,050.4	23,698	463,728.0	24,279
Average loan size	22.4	--	22.1	--	20.9	--	19.5	--	19.1	--
Delinquent (%)
30 days	0.8		0.3		0.4		0.7		0.2
60 days	0.4		0.3		0.3		0.6		0.1
90+ days	2.8		2.9		3.8		4.5		0.6
Total	4.0		3.4		4.5		5.8		0.9
Totals may not add due to rounding. UPB--Unpaid principal balance.

New-loan boarding

WFCMS has a sound loan set up function. Control and other features of new loan setup considered in our assessment include the following:

• An asset management review, as well as a pre-release data audit of critical system fields, is completed before releasing the loan into the production environment to ensure that the key loan information is correctly interpreted.
• All document exceptions are cleared with triggers, ticklers, and notepad information entered into Strategy. Once completed, all related material is collected in a boarding file, which is then imaged.
• Current loan onboarding and change requests are managed using various email boxes, templates and shared drives. Workflow automation has recently been implemented to capture data and route email requests online to appropriate teams.
• WFCMS targets a maximum of 10 days to have all essential data boarded, which is in line with peers. As part of the monthly pool remittance process, quality control procedures call for the investor reporting area to examine all adjustable-rate mortgage loans and coordinate with WFCMS operations on any required adjustments.
• A post-boarding audit is performed after approximately 90-120 days, or as needed, to identify and manage exceptions. Management reported the boarding of more than 400 new loans in the first half of 2023 and more than 1,900 new loans in 2022.
• Customer service analysts contact all new borrowers and inform them of available support, and verifies that the borrower welcome package, which is sent out within three days of closing, has been received.
• WFCMS works with a vendor to assist with loan boarding, including auditing loans boarded by offshore staff. Staff is cross trained to handle any part of the loan boarding function which serves as a benefit during periods of high volume.

Payment processing

WFCMS practices and integrated technology tools efficiently address payment processing, cash-managed loans, and other complex loan structures with appropriate segregation of duties. Highlights of payment processing considered in our assessment include:

• As of June 30, 2023, 53.0% of payments were received through automatic drafting, 23.0% were made via wire transfer, 22.0% were received through the lockbox, and 2.0% made via servicer's website. We view the resulting 100% automated capture rate favorably.
• The process for handling live checks from nonroutine issuance (i.e., insurance losses) is well-controlled, using a dual log system. Any discrepancies are referred to the operations department manager.
• All checks are deposited (via an electronic process), applied, or researched within a 24-hour time frame. Payment clearing accounts are balanced daily with the servicing system and subject to supervisory sign-off.
• Strategy is interfaced with the bank's general ledger system to ensure an accurate posting process, with exceptions researched and resolved.
• WFCMS has transitioned applicable loans to SOFR rates from LIBOR.
• As of June 30, 2023, no unidentified or unreconciled items aged more than two days had appeared in the clearing accounts. There were 64 items aggregating over $3.6 million classified as "in suspense" more than 90 days, which given the substantial size of the portfolio is not viewed as a concern.

Investor reporting

WFCMS is highly experienced with CMBS, GSE, and third-party reporting requirements. Highlights considered in our assessment include the following:

• Procedures demonstrate an appropriate segregation of duties among the staff for investor reporting, remitting, and custodial bank account reconciliations.
• An area separate from payment processing is responsible for investor accounting and reporting, and a distinct finance and accounting team performs all bank account reconciliations.
• Data is automatically validated before investor remittance, and all reporting and remitting to investors is conducted electronically.
• WFCMS can produce customized reporting and remitting packages tailored to each investor's requirements while maintaining all critical data in the protected Strategy environment. To ensure timely CMBS investor reporting and remittances, investor reporting team members and managers perform daily reviews of a critical date calendar and a distribution log, as applicable.
• Trustee balances are reconciled with Strategy report data, which is reviewed and approved by management. Once approved, the remittance report is sent to the applicable party as part of the CREFC investor reporting package.
• WFCMS electronically monitors all bank account information, expediting the reconciliation process. Its daily balancing of all major custodial accounts, which we typically see with STRONG-ranked U.S. servicers, reduces the possibility that outstanding items will age for any significant time. This is reflected by having no unidentified items aged more than 60 days reported.
• Quality control (QC) audits of all cash and noncash transactions are performed within 48 hours to ensure compliance with agreed-upon procedures and practices.

Additionally, the CMSView portal, an online application, offers various customized views:

• The borrower view provides access to payment information, property data, and escrow detail, and offers functionality that allows borrowers to upload financial statements.
• The investor, rating agency, subservicer, and special servicer views provide commercial real estate finance reports, deal-, loan-, and property-level analysis, imaged property inspections, and operating statements.

Escrow administration

WFCMS has sound controls for escrow administration activities. It has dedicated teams for tax and insurance administration as well as customer service staff both internally and offshore handling loan-level reserve monitoring and analysis for other escrowed events such as tenant improvements and replacement reserves. Other attributes include:

• The Reserves Team manually processes thousands of reserve disbursement requests per month. An email automation program was developed since our last review to monitor the reserves email box and integrate with an internal application. Reserves can be priority flagged by client for SLA turnaround time. This process reduces delays and lost emails. Management believes it has created more timely submissions.
• A contract with a property tax service vendor covers all portfolio loans (including non-escrowed), and loans are tracked for payment verification. As of June 30, 2023, 42.0% of the primary serviced loans maintain tax escrows.
• Any loan with unpaid taxes is automatically flagged for inclusion on a system-generated watch list.
• Tax disbursement funds are wired to the vendor, and all pertinent data is uploaded from the vendor's system to Strategy.
• As an additional QC measure, the escrow management group prepares a quarterly large-asset report that is reviewed by the escrow management group and insurance department managers to ensure that all single-asset loans with an UPB of $100 million or more have taxes paid and have no outstanding issues.
• In the first half of 2023 three loans incurred a non-reimbursable tax penalty. During 2022 there was only one loan that incurred a non-reimbursable tax penalty, which we view as immaterial given the size of the portfolio.

Insurance monitoring is initiated during new loan setup, loan assumptions and modifications. The insurance team obtains documentation to confirm evidence of coverage; it then monitors the insurance policies to ensure timely renewal (separate personnel in operations pay insurance premiums). Other insurance aspects include:

• As of June 30, 2023, 30.0% of the primary serviced loans maintain insurance escrow accounts.
• The insurance tracking function is fully automated via a system specifically designed internally to monitor and report on key insurance dates and coverages.
• WFCMS circulates reminder notices to borrowers 30 days before insurance policy expiration. If the borrower fails to provide adequate property insurance coverage, coverage will be force-placed 90 days after the policy expiration date.
• WFCMS' established force-placed policy has lengthy 365-day retroactive coverage, and force-placement activity remains negligible.

Asset and portfolio administration

WFCMS has sound procedures covering asset and portfolio administration tasks. Notable features considered in our assessment include:

• UCC ordering and tracking (including continuations, terminations, searches, and filings) is fully automated via a third-party vendor with the capability to file electronically in all states. The vendor's database is fully accessible via its website, which provides monthly status reports on renewal and expirations.
• The portfolio had over 15,000 UCC filing requirements as of June 30, 2023.
• While there were six instances of lapsed filings during this time, none resulted in loss of lien.
• A third-party vendor performs all site inspections. Inspections for loans with an UPB of $2 million or more are completed annually; smaller loans have inspections performed every two years.
• All inspections are scheduled on a property surveillance workflow system and completed inspection reports undergo a QC review process.
• Deferred maintenance items are centrally tracked, with notices sent to the borrower and if significant may prompt a loan's addition to WFCMS' watch list.
• The portfolio surveillance and reporting (PSR) team manages the collection of property operating statements and leasing information, tracks all statement due dates, and handles request mailings. Substandard financial statement results are integrated with the watchlist for possible inclusion.
• WFCMS received and analyzed 98.0% of its Dec. 31, 2022 CMBS operating statements by June 30, 2023. These metrics are generally favorable to those of their peers.

The watchlist process is managed by teams in both asset management (loans greater than or equal to $50 million) and PSR (loans less than $50 million). Procedures include the following:

• Automated reports are generated for the portfolio using CREFC's watchlist criteria.
• The addition or removal of loans on the watchlist for data-driven triggers occurs systematically.
• Manual triggers are managed by asset management and PSR for their respective loans, with all watchlist loans being reviewed monthly.
• Ongoing reviews of property performance are conducted until conditions meet predetermined investor criteria.

Borrower requests

WFCMS addresses borrower requests in a well-controlled manner. In the first half of 2023, in its capacity as primary or master servicer, more than 1,800 CMBS borrower consent reviews were completed including: leasing consents (65.5%), defeasance (14.7%), property management changes (8.9%), transfer of equity interests (6.2%), assumptions (2.7%), partial releases (2.0%), and forbearance (0.1%). During 2022, in its capacity as primary or master servicer, more than 4,500 CMBS borrower consent reviews were completed including: leasing consents (54.8%), defeasance (30.6%), transfer of equity interests (5.1%), property management changes (3.9%), assumptions (3.4%), partial releases (1.8%), and forbearance (0.4%).

The request for a CMBS loan assumption or nonpermitted equity transfer is typically processed by the WFCMS asset management--loan assumptions team. The loan assumptions team is responsible for the front-end of the process, which includes:

• Managing the underwriting process, which is conducted by a third-party vendor.
• Submitting a written recommendation to the asset manager for review and approval.
• Obtaining any further internal approvals, as necessary, in accordance with the WFCMS approval matrix.
• Obtaining all necessary third-party approvals.
• Sending a closing package to a team dedicated to loan assumption closings, which coordinates the closing with legal counsel and any internal operational teams, after all approvals are obtained.
• An internal reporting mechanism that is in place to track resolution times and monitor the status of assumptions that are in underwriting, under the third-party special servicer's review, and in closing.
• The company added online generation of some requests into shared mailboxes and into CMS workflows to streamline the borrower request process.
• Other borrower-consent requests, such as lease reviews, property management changes, release of collateral, and defeasance also have well-defined processes for the asset management team to review and have approvals obtained in accordance with the WFCMS approval matrix.

Early-stage collections

WFCMS has a well-controlled early-stage collections process. Noteworthy features include:

• The Strategy system produces daily reports to identify delinquencies for follow up from the collection log.
• Strategy automatically generates late payment notices, which are issued one day following the due date, with a subsequent default notice issued when the payment is more than 31 days past due.
• Attempts to contact the borrower by telephone occur three days after the payment due date or the grace period's expiration, and a chronology of collection comments is maintained online.
• Loans unpaid past the grace period (if applicable) are immediately added to the watch list, and delinquent loans may be transferred to a special servicer before the 60th day of delinquency, on a case-by-case basis.

Loan Administration – Master Servicing

The loan administration subranking is STRONG for commercial mortgage loan master servicing.

As a master servicer, WFCMS has proactive PnP's in place regarding subservicer oversight. As of June 30, 2023, WFCMS acted strictly as master servicer for a portfolio of 6,081 loans, where it has oversight responsibilities for 65 subservicers, with an approximate UPB of $130.4 billion combined (see table 9). The average loan size in the master serviced portfolio remained relatively flat at $21.4 million as of June 30, 2023, compared to $20.9 million at our last report.

The master servicing portfolio contracted 10.5% since our last review at June 30, 2021, after several years of continuous growth. Within their serviced by others portfolio, WFCMS reported a June 30, 2023, delinquency rate of 0.9%, which while still higher than the 0.1% in our last pre-pandemic review, it is a marked decrease from the 1.7% at the time of our last review.

Table 9

Master servicing portfolio
	June 30, 2023		Dec. 31, 2022		Dec. 31, 2021		Dec. 31, 2020		Dec. 31, 2019
	UPB (mil. $)	No.	UPB (mil. $)	No.	UPB (mil. $)	No.	UPB (mil. $)	No.	UPB (mil. $)	No.
Master (SBO) loans	130,356.9	6,081	134,293.5	6,401	142,403.6	7,977	139,768.1	6,838	130,437.8	6,652
Subservicers	--	65	--	65	--	67	--	70	--	76
Average loan size	21.4	--	21.0	--	17.9	--	20.4	--	19.6	--
Delinquent (%)
30 days	0.2		0.2		0.1		0.3		0.0
60 days	0.1		0.1		0.0		0.2		0.0
90+ days	0.6		0.6		1.4		0.7		0.0
Total	0.9		0.9		1.5		1.2		0.1
Totals may not add due to rounding. SBO--Serviced by others. UPB--Unpaid principal balance.

New-loan boarding

• WFCMS' procedures regarding loan setup are documented, and appropriate data integrity measures are in place.
• Subserviced loans are boarded with information necessary for the timely and accurate production of investor reports.
• Supplementary programs allow automated data entry to Strategy, after which boarding packets are imaged, logged, and sent to loan administrators for auditing.
• Subservicers receive a series of letters outlining their responsibilities as dictated by the WFCMS standard subservicing agreement.
• In the first half of 2023, the servicer boarded 203 loans subserviced by others. During 2022, WFCMS boarded 592 loans subserviced by others.

Subservicer accounting and reporting

Master servicing personnel oversee loan accounting functions including the following:

• On the first of each month, WFCMS receives reports from each subservicer outlining upcoming remittances, with projections for principal, interest, and subservicing fee splits, and any expected curtailments or payoffs.
• Reports are examined to ensure any corrections necessary are made before the remittance due date, preventing any impact on the related trust or investor.
• WFCMS does not shadow-service the loans on which it serves as master, but it records basic loan-level information and amortizes monthly payment records via aggregate posting of subservicer remittances on Strategy. Delinquencies, curtailments, and other adjustments are made through manual exception processing.
• The same dedicated personnel responsible for primary servicing also handle master servicer investor reporting.
• Each month, investor reporting specialists prepare reports from Strategy, reconciling all activity reported by subservicers to the underlying actual and scheduled loan balances, and separate operations personnel perform custodial account reconciliation reviews necessitating supervisory sign-off.
• After receiving trustee reports and submissions for wire transfers, the operations department releases remittances.

Subservicer oversight  

WFCMS does not shadow-service its master-serviced portfolio for tax, insurance, or UCC file renewals, but it requires subservicers to provide evidence of real estate tax payments, insurance coverage monitoring, and UCC filing validations.

Escrow administration 

WFCMS' escrow administration oversight procedures effectively monitor subservicers that are suitably overseeing their loan portfolios. Subservicer loan-level exception reports for taxes and insurance are reviewed on a quarterly basis and subservicer UCC exception reports are reviewed monthly.

Asset and portfolio administration 

Each subservicer is responsible for conducting property inspections and performing financial statement analysis for each loan in its portfolio. These duties are monitored by members of WFCMS' PSR team. Other noteworthy features include:

• A standard subservicer reporting model tracks data for CREFC compliance. It allows subservicers to electronically forward operating statements and rent rolls along with inspection comments in accordance with the terms of each transaction's underlying documentation.
• Over 90.0% of the 2022 subservicer-supplied annual financial data was reanalyzed by WFCMS through June 30, 2023. After data is reanalyzed, portfolio reporting analysts prepare all operating statements and review all subservicer financial data and ratio calculations.
• Of the master serviced portfolio annual property operating statements, 95.0% were received and analyzed by June 30, 2023.
• Once the financial data is analyzed, all loan data is passed through various criteria flags to see if further review is required. The financials are then uploaded to a historical database.
• All property inspections are reviewed and tracked in the servicing system, with open items for deferred maintenance also tracked until completion.
• All loans in the master-serviced portfolio are included in the WFCMS formal watch list program, and the criteria for inclusion are the same as established for primary-serviced loans.
• For loans where WFCMS is the master servicer only, the deal asset managers review the cases submitted by the subservicers.

Audit/compliance 

WFCMS' audit regime effectively controls risks related to negligent or poorly qualified subservicers. Features include the following:

• As of June 30, 2023, five full-time employees were engaged in subservicer oversight, audit and compliance activities.
• All subservicers are assigned a risk rating based on the volume of loans serviced, the latest subservicer audit rating, financial strength, and WFCMS' historical experience. The resulting overall rating is then tied to an assigned risk factor of high, medium, or low. Each risk factor level mandates set procedures for oversight and monitoring.
• All loans on a subservicer's watchlist are also included on the WFCMS watchlist as master.
• Audits include Freddie Mac seller-servicers which also service CMBS loans. Post-audit interviews of subservicers' senior management are performed. WFCMS monitors responses to audit findings to ensure that areas of concern are addressed and rectified quickly.
• In the first half of 2023, 10 on-site subservicer audits were completed. During 2022, 38 subservicer audits were conducted remotely, and 12 desk audits were completed on-site. During 2021, all 30 subservicer audits were completed remotely.

Investor reporting, advancing, and special servicer interaction

The master servicer is responsible for advancing principal and interest payments, as well as property protection expenses for its CMBS portfolio. WFCMS has detailed procedures regarding payment advances and the determination of their recoverability for the trust including the following:

• WFCMS formally tracks cumulative advances at the loan level relative to the collateral value.
• As a policy guideline, advances are limited to 60.0% of its estimate of collateral value. If the criteria allow for a principal and interest advance, the team member submits the advance request with supporting documentation for management approval.
• Once approved, the funds are transferred from a general ledger account to a principal and interest custodial account.
• With respect to property protection advances, servicing personnel perform the servicing advances for all specially serviced loans at the special servicing asset manager's direction.
• Once specific advances have been approved internally, a WFCMS special servicing coordinator will proceed with the advanced funds' disbursement and record the relevant information in Strategy.
• WFCMS also maintains procedures to monitor special servicers' efforts updating appraised values. It conducts calls with special servicers to understand future advance expectations along with the timing of exit strategies to aid in its advancing decisions.
• WFCMS reconciles subservicers' remittances to trustee remittance reports monthly.
• Senior management, in conjunction with asset management and investor reporting management, undertakes a monthly loan-level review of advances to aid in its decision-making and non-recoverability determinations.

Loan Administration – Special Servicing

The loan administration subranking is ABOVE AVERAGE for commercial mortgage loan special servicing.

WFCMS serves as a third-party CMBS special servicer, having no ownership or affiliation with the controlling class representative (CCR) of each trust. This independence minimizes potential conflicts of interest that are inherent when a special servicer is an affiliate of the CCR. According to management, WFCMS has resolved 754 specially serviced loans aggregating $20.5 billion in UPB since 2010.

WFCMS offers due diligence services to third-party B-piece investors of CMBS and agency transactions. Such assignments are generally provided in anticipation of a special servicing appointment if the investor becomes the successful B-piece buyer.

As of June 30, 2023, WFCMS was the appointed special servicer on 172 U.S. securitized transactions (CMBS (non-conduit), CRE-CLO, and Freddie Mac CME products combined), containing approximately 3,000 loans aggregating $101 billion of UPB. Outside of securitizations, WFCMS indicates that it is the named special servicer on more than 58 non-CMBS loans that aggregate $2.1 billion in UPB. This is a significant reduction from the 225 loans that aggregated to $4.3 billion at the time of our last review. Management stated that internal balance sheet transactions were transitioned out of WFCMS special servicing and a significant number of SASB/CMBS transactions paid off.

The company manages special servicing from its Charlotte office reporting 12 full-time employees onshore and four full-time employees offshore as of June 30, 2023. Team members have responsibility for either loan workouts, borrower requests or surveillance. Loan asset managers handling work outs may also handle real estate owned (REO) assets to the extent applicable (although we note that the June 30, 2023, portfolio has no REO). All special servicing asset managers use the RealINSIGHT system.

After declining markedly during 2021 owing to loan resolution activity associated with pandemic impacted loans, the UPB of the company's active special serviced loans significantly increased to nearly $5.7 billion from $965 million since Dec. 31, 2021 (see table 10). While loan count rose 75.0%, to 21 from 12, UPB rose at a much greater level due to significantly larger loans serviced, especially in the retail sector. Management indicated they expect to see an increase in specially serviced loans of office collateral and to a lesser extent from retail sectors in coming months.

In the first half of 2023, the servicer completed five loan resolutions: three full payoffs and one each returned to master and discounted payoff. During 2022, WFCMS completed 17 loan resolutions including: 10 full payoffs, six return to master, and one discounted payoff. The average resolution UPB was $119.3 million in the first half of 2023 and $95.4 million in 2022 (see table 11).

Overall average hold times for the first half of 2023 resolutions was 9.2 months, a slight decrease from the 10.6 months reported during 2021 but a marked increase over the multi-year low of 5.3 months in 2020. The increase in resolution hold times since our last review, which are still quite favorable, is attributable to more complex and larger loan resolutions such as regional malls and office properties. Generally, the loan size and complexity of these workout loan structures are significant and require a high level of scrutiny and thorough understanding of the loan documents.

As of June 30, 2023, WFCMS managed an active portfolio of $5.7 billion of UPB, consisting of 21 loans, all but one of which are CMBS, and no REO property (see table 10). Further, the collateral is dominated by office (42.2% of UPB) and retail (40.1%) properties along with 16.3% of lodging assets.

Table 10

Special servicing portfolio
	June 30, 2023			Dec. 31, 2022			Dec. 31, 2021			Dec. 31, 2020			Dec. 31, 2019
	UPB (mil. $)	No.	Avg. age (i)	UPB (mil. $)	No.	Avg. age (i)	UPB (mil. $)	No.	Avg. age (i)	UPB (mil. $)	No.	Avg. age (i)	UPB (mil. $)	No.	Avg. age (i)
Active inventory
Loans	5,669.7	21	11.3	3,489.2	15	11.4	965.3	12	14.1	3,925.4	28	7.7	799.6	8	5.1
Real estate owned	0.0	0	0.0	0.0	0	0.0	0.0	0	0.0	0.0	0	0.0	0.4	1	15.2
Total	5,669.7	21	11.3	3,489.2	15	11.4	965.3	12	14.1	3,925.4	28	7.7	800.1	9	6.2
Totals may not add due to rounding. (i)Avg. age reflects the time in months from the date the loan first became specially serviced to the reporting date.

Table 11

Total special servicing portfolio--loan resolutions
	2023(ii)			2022			2021			2020			2019
	UPB (mil. $)	No.	Avg. age(i)	UPB (mil. $)	No.	Avg. age(i)	UPB (mil. $)	No.	Avg. age(i)	UPB (mil. $)	No.	Avg. age(i)	UPB (mil. $)	No.	Avg. age(i)
Resolutions
Loans	596.5	5	9.2	1,621.6	17	10.6	3,615.5	29	9.1	2,613.9	20	5.3	440.3	17	20.9
Foreclosed loans	0.0	0	0.0	0.0	0	0.0	0.0	0	0.0	0.0	0	0.0	0.4	1	14.0
Total	596.5	5	9.2	1,621.6	17	10.6	3,615.5	29	9.1	2,613.9	20	5.3	440.7	18	20.5
Resolution breakdown
Returned to master	570.2	1	5.6	75.6	6	15.3	3,269.8	14	10.8	2,490.2	14	5.1	433.0	7	19.0
Full payoffs	22.4	3	7.4	1,530.4	10	8.5	339.8	14	7.3	59.5	5	4.8	5.5	8	21.3
DPO or note sale	3.8	1	18.2	15.7	1	3.7	5.9	1	10.0	64.2	1	10.2	1.8	2	26.2
Foreclosed loans	0.0	0	0.0	0.0	0	0.0	0.0	0	0.0	0.0	0	0.0	0.4	1	14.0
Total/average	596.5	5	9.2	1,621.6	17	10.6	3,615.5	29	9.1	2,613.9	20	5.3	440.7	18	20.5
Totals may not add due to rounding. (i)Avg. age reflects the time in months from the date the loan first became specially serviced to the reporting date. UPB--Unpaid principal balance. DPO--Discounted payoff. (ii) Data only includes the first six months of the year

Special servicing operations are headed by a managing director who is based out of Charlotte and has extensive industry experience (over 30 years) and tenure (22 years) with WFCMS. He reports directly to WFCMS' senior credit officer, who is also the head of asset management. Key elements of the special servicing operations include:

• Six asset managers oversee troubled asset portfolio resolutions and four asset managers are dedicated to borrower consents on performing loans.
• Assets per asset manager at June 30, 2023 was 3.5, a very low ratio compared to peers.
• Special servicing asset managers averaged 21 years of industry experience as of June 30, 2023, which is generally in-line with other ABOVE AVERAGE ranked special servicers.
• Proactive policies and procedures are in place with respect to special servicing loan administration.
• Oversight of special servicing loans is managed through the WFCMS approval matrix, which provides certain delegated authority depending upon the transaction type and underlying dollar amounts.

The specially serviced asset committee (SSAC) meets quarterly to formally review and analyze the current and previous quarter's special servicing activity. Quarterly reviews include loan-by-loan discussions with asset managers, providing specific details of the current workout strategy, potential gain or loss, potential advancing, resolution time frame, etc. The SSAC is composed of the following:

• The head of the special servicing team;
• The special servicing team leaders; and
• The senior WFCMS credit officer.

The SSAC defines and oversees general policy, procedure, and administrative issues. This includes reviewing and monitoring:

• Asset status reports (ASRs) and asset business plans;
• Resolution and disposition plans, and ratifications of workouts and sales;
• The transfer of corrected loans back to the master servicer upon resolution;
• REO properties managed by WFCMS; and
• Advancing activity and the collective advances made by the special servicer and master servicer for each securitization.

To the extent requested, or required due to certain issues, the special servicing senior managers and asset managers conduct monthly meetings with third-party master servicers to review portfolio performance and watch list reports. This information is shared at the SSAC's quarterly meeting. The process identifies loans that are candidates for transfer to special servicing, provides support to the master servicers on problem loan issues (including the monitoring of advances), and fosters continued interaction when assets are transferred to the special servicer.

We believe the SSAC structure provides an effective control over the existing and future strategies while serving as a setting for exchanging views and presentations. The committee reviews action plans and their updates for each asset, and it monitors advancing activities for CMBS loans as needed, but no less frequently than quarterly.

Loan recovery and foreclosure management

WFCMS exhibits effective and proactive loan recovery and foreclosure management protocols to efficiently resolve nonperforming loans across a broad spectrum of property types. Highlights include the following high-level asset manager steps:

• Asset managers research the history of the transferred loan, the borrower, the circumstances of the default and examine if any mortgage loan seller breached representations and warranties.
• Asset managers obtain a signed pre-negotiation letter from the borrower and determine the borrower's intentions for the property and loan.
• All correspondence and pertinent documentation is imaged and preserved in the loan file.
• An ASR and/or asset business plan is developed in accordance with the applicable pooling and servicing agreement (PSA) in no more than 60 days.
• New third-party reports are ordered to be reviewed as that may be required by the PSA or other internal guidelines.
• Legal counsel is engaged as necessary.
• Foreclosure actions are initiated after workout or forbearance discussions are exhausted.
• The loan and property is monitored to ensure the ASR remains current during issue resolution or disposition.
• Receive approval of ASRs and their recommendations from team leaders or the head of special servicing, or both, based upon the required authorization per the WFCMS approval matrix.
• Incorporate into CAMS the resolution plans containing loan collateral data and prepare quarterly management reporting for review by the SSAC.
• Foreclosure recommendations are reviewed from special servicing asset managers in conjunction with their team leader or the head of special servicing, based on the WFCMS approval matrix.
• Orderly asset transitions are executed to REO status in conjunction with legal department personnel, third-party attorneys, and loan administrators.
• All pending foreclosure dates are tracked, following a pre-foreclosure, due-diligence checklist.
• The title transfer notification is completed and communicated electronically within 24 hours of the foreclosure sale; formal notification occurs through the asset management reports' monthly updates.

We believe the high-level steps outlined above demonstrate a well-controlled process. We note that to minimize the timeline to obtain title in the event of an unsuccessful workout, higher-ranked servicers will generally dual-track foreclosure actions while maintaining workout discussions with borrowers.

REO management and dispositions

As a special servicer, WFCMS has had recent limited experience with REO properties, although its PnPs demonstrate proactive REO management and sales oversight. Notable aspects include the following:

• Given its history of having a minimal REO portfolio, WFCMS does not have dedicated REO asset managers and its loan asset managers can also manage any REO.
• After a title transfer, an asset manager is responsible for monitoring property managers, including approving budgets, controlling disbursement accounts, reviewing leases, and marketing and selling the properties.
• Within 60 days of taking title, the asset manager prepares a property business plan, which includes an operating budget and a recommended resolution strategy.
• A net present value (NPV) analysis is typically included in business plans. To proceed with the REO sale, the asset manager recommends the broker, sales price, and commission, using an NPV analysis to establish the sale price.
• Written approval of the business plan, including the broker selection, must be obtained from the head of special servicing before engaging a broker.
• The listing agreement, which contains established timelines, must also be approved by legal counsel. Upon selection of an offer, an asset manager will coordinate its closing in conjunction with outside counsel.

As indicated in table 12, WFCMS has had a limited amount of REO sales activity over the past few years and none since 2020. Its minimal REO disposition activity limits the usefulness of average hold period and sales proceeds/market value metrics.

Table 12

Total special servicing portfolio--real estate-owned sales
	2023(i)			2022			2021			2020			2019
	Amount (mil. $)	No.	Avg. REO hold period (mos.)	Amount (mil. $)	No.	Avg. REO hold period (mos.)	Amount (mil. $)	No.	Avg. REO hold period (mos.)	Amount (mil. $)	No.	Avg. REO hold period (mos.)	Amount (mil. $)	No.	Avg. REO hold period (mos.)
Estimated market value	0.0	0	0.0	0.0	0	0.0	0.0	0	0.0	0.3	1	12.2	527.2	2	13.1
Gross sales proceeds	0.0	--	--	0.0	--	--	0.0	--	--	0.3	--	--	466.9	--	--
Net sales proceeds	0.0	--	--	0.0	--	--	0.0	--	--	0.3	--	--	451.2	--	--
Gross sales proceeds/market value (%)	N/A	--	--	N/A	--	--	N/A	--	--	97.1	--	--	88.6	--	--
Net sales proceeds/market value (%)	N/A	--	--	N/A	--	--	N/A	--	--	87.8	--	--	85.6	--	--
(i)Data only includes the first six months of the year. REO--Real estate-owned. N/A--Not applicable.

REO accounting and reporting

Controls and procedures for property-level accounting and oversight are sound. Highlights include:

• On or before a CMBS loan converts to REO, the asset manager will establish and maintain a single operating bank account for the REO property in the name of the trust to deposit income pay related expenses.
• All property managers are required to electronically submit monthly operating reports by the 15th of each month.
• WFCMS uses a single REO operating account set-up with their property managers.
• The REO asset manager reviews the monthly financial and operating reports and reconciles REO bank statements to ensure that net operating income is properly controlled, reported, and reconciled to the bank statement accounts.
• The asset manager oversees disbursements for all managed assets.
• Asset managers work with a third-party accounting company, which will selectively oversee and monitor the books of the property manager on a quarterly and annual basis. The accounting firm also prepares a formal annual audit report on CMBS assets, which is reviewed by the asset manager and the head of special servicing. We note, however, that no property manager audits have been performed in several years.

Subcontracting management

WFCMS handles the management and oversight of subcontractors in a controlled and effective manner under the following guidelines:

• The real estate technical services group (RETECHS), which is an independent bank department that provides third-party opinions on real estate risk or issues, is responsible for soliciting, reviewing, tracking, and approving subcontracting bids for these needs.
• RETECHS has a professional staff of certified appraisers and construction and environmental engineers in regional offices. Given this internal control, WFCMS does not maintain approved third-party vendor lists.
• RETECHS is responsible for ensuring that vendor reports remain consistent with Wells Fargo's corporate polices, as well as verifying that vendors comply with federal regulatory requirements and safe and sound banking practices.
• RETECHS appraisers engage fee-based appraisers to prepare valuation reports and hire independent third-party appraisers to perform desk reviews of third-party valuations to ensure the valuation methodologies employed are reasonable and in compliance with industry standards. All appraisers must be state licensed.
• Approved fee appraisers' performance is tracked in a standardized performance report, and appraisers are removed from the list if three unsatisfactory appraisals are submitted in any 12-month period.
• Environmental audits are ordered for all pending foreclosures. RETECHS staff order and review all phase I and other required reports. RETECHS maintains an approved list of third-party consultants.
• Appraisers are required to include an environmental site inspection checklist with their reports, and only the department's senior management can approve phase II and III reports.

We believe WFCMS maintains adequate controls for engaging property management and brokerage firms. Asset managers (as opposed to RETECH) are responsible for selecting and overseeing the appropriate property management firm, using past relationships or interviews to select vendors.

To be selected, property management companies must have:

• Expertise specific to the property type;
• Well-established accounting departments that prepare budgets, collect rental income, pay expenses, prepare monthly reports, and perform account reconciliation;
• Access to a segregated account for funds generated by the property and commitment to send monthly funds generated to the appropriate accounts.

Further controls for engaging property management and brokerage firms include:

• Before any property management agreement is signed, the head of special servicing must supply written approval.
• When soliciting broker bids for listing properties, asset managers utilize an established network of brokers and generally receive at least three proposals depending on property location.
• The asset manager prepares an updated business plan recommending the broker, sales price, and commission, utilizing an NPV analysis to establish the sales price.
• Written approval of the business plan, including the broker selection, must be obtained from the head of special servicing prior to engaging a broker. The listing agreement, which contains established timelines, must also be approved by legal counsel.

Performing loan surveillance

The special servicing team performs surveillance on loan portfolios for which it is the appointed special servicer. The team focuses on identifying problem loans or loans approaching maturity with refinance risk. WFCMS uses their offshore support for these surveillance functions as the need arises. Responsibilities include:

• Assisting the PSR and asset management units with monitoring weaker and watch-listed loans that have the potential for future transfer to WFCMS' special servicing.
• Proactive monitoring for select B-piece buyers, providing securitization and loan-level reporting, including detailed updates on specially serviced and watch-listed loans, active consent requests, and approaching maturities.

Borrower requests

WFCMS addresses borrower requests in a controlled manner. Highlights include:

• In the first half of 2023, WFCMS completed 78 special servicing borrower consent reviews, with an aggregate UPB of $7.8 billion including: 14 management changes, 12 leasing consents, 10 modifications, four assumptions, one defeasance, one forbearance, and 37 various other requests. During 2022, the special servicing team completed 97 CMBS borrower consent reviews, with an aggregate UPB of $3.9 billion including: 30 modifications, 26 leasing consents, 19 management changes, two assumptions, two partial releases, one forbearance, and 17 various other requests.
• Asset managers review master servicer-prepared case memorandums (including those prepared by WFCMS when it also serves as master servicer) and prepares the recommendation memos to the required internal parties designated through WFCMS's special servicing approval matrix.
• Third-party CCR approvals are obtained as dictated by the underlying PSAs.

Legal department

WFCMS has two in-house legal staff available to support special servicing asset management. Outside counsel can also be retained if the need arises. Responsibilities typically include general servicing guidance, PSA interpretation, and engagement of outside counsel. Notable aspects of the legal function include:

• WFCMS chooses external legal counsel from an approved list of firms, and they must be approved by Wells Fargo internal counsel; standardized agreements are not used.
• Asset managers approve legal bills before payment is authorized.
• In addition to assisting with closing property sales, external legal counsel drafts or reviews loan modification documents, foreclosures, remedies, and workout documentation.

Financial Position

The financial position is SUFFICIENT.

Related Research

• Wells Fargo Commercial Mortgage Servicing Rankings Affirmed; Ranking Outlooks Stable, Aug. 23, 2023
• Update: Wells Fargo & Co., July 28, 2023
• Select Servicer List, July 18, 2023
• Servicer Category Descriptions Expanded and Revised, Feb. 28, 2022
• Servicer Evaluation: Wells Fargo Commercial Mortgage Servicing , Nov. 15, 2021
• Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019

Servicer Analyst:	Marilyn D Cline, Dallas + 1 (972) 367 3339; marilyn.cline@spglobal.com
Secondary Contact:	Steven Altman, New York + 1 (212) 438 5042; steven.altman@spglobal.com
Analytical Manager, Servicer Evaluations:	Robert J Radziul, New York + 1 (212) 438 1051; robert.radziul@spglobal.com