News Column

Fitch Assigns Initial RMBS Servicer Rating To First Republic Bank

May 16, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned the following U.S. residential mortgage servicer rating to First Republic Bank (FRB):

--Initial U.S. residential primary servicer rating for Prime product assigned 'RPS2-'; Outlook Stable.

A level two rated servicer demonstrates high performance in overall servicing ability. Characteristics of a level two rated servicer include a stable servicing operating history, strong financial resources, strong procedures, controls and risk management framework, and experienced leadership.

The rating action is based on FRB's effective high touch servicing model and established internal control environment. Due to this personal service approach and the low level of delinquencies, the rating also reflects FRB's moderate use of servicing technology and the relatively low volume of REO assets that the company historically has handled. In addition, the rating incorporates the company's financial condition. FRB is rated 'A-'; Outlook Stable by Fitch.

Finally, the rating also incorporates Fitch's overall concerns for the U.S. residential servicing industry which include the ability to maintain high performance standards while addressing the rising cost of servicing and changes to industry practices, mandated by regulators and other parties.

FRB is a California-chartered commercial bank and trust company that was founded in 1985. FRB specializes in providing personalized, relationship-based preferred banking, preferred business banking, real estate lending, trust and wealth management services to clients in selected metropolitan areas throughout the United States. FRB's servicing operations are headquartered in San Francisco CA with an additional site in Las Vegas NV. FRB does not use any off-shore resources in its servicing operations. As of Dec. 31, 2013, FRB was servicing more than 35,000 loans totaling $27.8 billion, which included approximately 25,000 non-agency prime loans totaling $23.9 billion.

FRB's high touch servicing model is well integrated into the bank's overall residential lending strategy. Relationship managers (RMs) are involved in all aspects of residential mortgage origination and servicing.

The incentive structure for RMs ensures strong knowledge of the borrowers and mortgaged properties that helps to address performance concerns. This servicing model is extremely effective for the high quality loans and high net worth borrowers that comprise most of FRB's residential mortgage portfolio. As of Dec. 31, 2013, only 0.16% of the servicing portfolio was 30+ days delinquent, in bankruptcy, or in foreclosure. However, this servicing model may not be as effective for higher risk, lower quality, or delinquent/defaulted portfolios.

FRB's internal audit department performs risk-based audits across the organization. The chief auditor reports to the audit committee of the board of directors; the audit committee is comprised of outside directors. FRB's lending services internal control department works closely with the company's internal audit, compliance, enterprise risk management, and lending services to ensure all processes and procedures in the residential mortgage lending operations are in compliance with regulatory guidelines and are minimizing risk exposure to the company.

FRB relies on its experienced servicing management and staff that operate without a significant emphasis on technology. FRB has not invested in extensive collections or default management systems due to its historically very low volume of delinquencies and defaults. In addition, most defaulted loans are resolved prior to completing a foreclosure sale, limiting the volume of REO properties that FRB has historically handled. As of December 31, 2013, FRB had only two REO properties in its portfolio. These factors may limit the scalability of the servicing operation.

Fitch rates residential mortgage primary, master, and special servicers on a scale of 1 to 5, with 1 being the highest rating. Within some of these rating levels, Fitch further differentiates ratings by plus (+) and minus (-) as well as the flat rating. For more information on Fitch's residential servicer rating program, please see Fitch's report 'Rating U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria', dated Jan. 31, 2014 which is available on the Fitch Ratings web site at 'www.fitchratings.com'.

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

Applicable Criteria and Related Research:

--'Global Rating Criteria for Structured Finance Servicers' (Aug. 13, 2010);

--'U.S. Residential and Small Balance Commercial Mortgage Servicer Rating' (Jan. 31, 2011).

Applicable Criteria and Related Research:

Global Rating Criteria for Structured Finance CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=718027

U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria -- Effective January 31, 2011 to January 30, 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=600065

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=830551

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Thomas Crowe

Senior Director

+1-212-908-0227

Fitch Ratings, Inc.

One State Street Plaza

New York, NY 10004

or

Secondary Analyst

Roelof Slump

Managing Director

+1-212-908-0705

or

Committee Chairperson

Grant Bailey

Managing DIrector

+1-212-908-0544

or

Media Relations

Sandro Scenga, +1 212-908-0278

sandro.scenga@fitchratings.com

Source: Fitch Ratings


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