News Column

Fitch: U.S. FFELP ABS Servicers Weathering Storm of Industry Changes

June 24, 2014



NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: FFELP Servicers Get a Passing Grade

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=717098

Servicers of U.S. FFELP student loan ABS have done an admirable job of keeping net claim reject rates in check, though whether they can continue that trend remains in question, according to Fitch Ratings.

Since the termination of the Federal Family Education Loan Program in 2010, FFELP loan servicers have had to endure a constantly changing environment. Among their numerous challenges has been keeping net claim reject rates under control in order to preventing sizeable ABS losses. Though they have met this challenge with success thus far, future sustainability is still uncertain.

Servicer loss, exemplified by net claims rejects, is a key rating driver that could contribute 20%-30% of stressed losses for 'AAA' rated FFELP ABS. The higher the amount of rejected claims, the more vulnerable FFELP ABS would be to higher losses. A declining FFELP portfolio coupled with ongoing sequestration and pending changes to direct loan servicing performance measurements and future allocations presents ongoing challenges to the industry, particularly small not-for-profit servicers, who due to size, may not fare as well as their larger counterparts.

'A student loan servicer's net claims reject rate represents their capability to service a loan as required and represents the true loss to an ABS trust, so the lower they can keep the number of rejected claims, the better,' said Managing Director Michael Dean. The good news is that student loan servicers are keeping rejected claims low thus far.

Factors that could lead to a spike in rejected claims would likely be one-time events like a servicing transfer or workforce reduction that create a backlog in claims filing. Fitch has already baked the potential for these disruptions into its analysis, with current data supporting Fitch's assumptions and stress levels for servicer loss. 'Even in the event of an outlier SLABS transaction where the net claims reject rate exceeds our base case threshold, it would still remain within Fitch's stress range,' said Dean.

'FFELP Servicers Get a Passing Grade' is available at 'www.fitchratings.com' or by clicking on the above link.

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

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

Emily Lee, +1 212-908-0667

Director

Fitch Ratings, Inc., 33 Whitehall Street, New York, NY 10004

or

Michael Dean, +1 212-908-0556

Managing Director

or

Media Relations:

Sandro Scenga, +1 212-908-0278

sandro.scenga@fitchratings.com

Source: Fitch Ratings


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