Fitch Ratings has affirmed First National Financial LP's (First National) commercial servicer ratings and assigned Rating Outlooks as follows.
Commercial primary servicer rating at 'CPS2-'/Outlook Stable;
Commercial master servicer rating at 'CMS3+'/Outlook Stable;
Commercial loan level special servicer rating at 'CLLSS3+'/Outlook Stable.
RATING ACTIONS
Entity / Debt
Rating
Prior
First National Financial LP
CMBS Loan Level Special Servicer
CLLSS3+
Affirmed
CLLSS3+
CMBS Master Servicer
CMS3+
Affirmed
CMS3+
CMBS Primary Servicer
CPS2-
Affirmed
CPS2-
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VIEW ADDITIONAL RATING DETAILS
Key Rating Drivers
The affirmation of the primary and master servicer ratings reflects the servicing group's dedication to training and developing staff, continued elevated turnover concentrated at the staff level, experienced management team with key person risk, sufficient internal controls with a history of annual internal audits, dedication to maintaining servicing technology, and the financial condition of First National's parent. The master servicer rating also considers potential advancing obligations for securitized transactions under stressed scenarios, which are mitigated by available liquidity and historically low Canadian delinquency rates as well as investment-grade rated backup advancing agents.
The affirmation of the special servicer rating reflects First National's stable and experienced asset management team, continued demonstrated capabilities resolving commercial mortgage loans, and the nature of the Canadian commercial mortgage market with a limited number of defaults. The rating also considers the special servicing group's access to the broader First National platform, as well as the limited use of technology for defaulted loan administration.
First National is a wholly owned subsidiary of First National Financial Corporation (FNFC), a publicly traded company founded in 1988 and headquartered in Toronto. First National is the largest Canadian nonbank lender participating in Canada's residential and commercial mortgage broker network. First National funds the majority of mortgages it originates through institutional and fund capital and a range of securitization alternatives; however, the company also originates a limited number of loans for its balance sheet. First National retains servicing on the commercial mortgage loans it originates on behalf of clients, securitized transactions and for its parent's balance sheet.
The commercial servicing group is comprised of 33 employees, up from 31 and 26 at Fitch's last two reviews. First National continues to successfully recruit and add staff to mitigate turnover and support portfolio growth with 14 new hires during 2022. Overall turnover in primary and master servicing increased to 37% from 25% at the last review and is in line with 34% in 2020. Excluding internal transfers, overall turnover would be 25%. Fitch notes that turnover among First National's staff-level employees has been higher compared to peers; however, average years of experience and tenure have remained consistent.
The special servicing group consists of five dedicated employees with four asset managers who average 28 years of industry experience and 13 years of company tenure. There was no turnover among special servicing employees in the last 12 months and no asset manager turnover during Fitch's last two reviews.
With 26 new hires over the last two years, average training hours per employee has remained consistent at 74 hours over that period. During the last 24 months, First National introduced 28 new training courses and two new training programs. The new training programs are delivered by internal resources and each target experienced and more junior staff.
First National uses Marlborough Sterling's OPTIMUS servicing system for commercial and residential servicing. Fitch noted some limitations of the system when compared to other systems used by Fitch-rated servicers; however, the application is appropriate considering the size and complexity of the servicing portfolio. First National also uses Microsoft's Power BI tool to monitor servicing requirements which incorporates data refreshed daily and Microsoft Dynamic's customer relationship management (CRM) system is used to track borrower requests and modifications. Recent technology initiatives have been mainly focused on a new servicing workflow application which is in the testing stage and expected to be rolled out in 2023.
Controls primarily consist of multiple levels of review. Management makes use of monthly reporting from the servicing system and Power BI to monitor workloads and loan performance metrics. Fitch notes as a strength that First National has an internal audit group reporting to the board of directors audit committee, performing annual audits of the servicing group. The servicing group's dedicated quality assurance team continues to build and implement sampling and testing policies yet the function has limited demonstrated proficiency.
As of Sept. 30, 2022, First National was the named master and primary servicer for nine securitized loans totaling $59.1 million and was also the named primary servicer (reporting to an external master) for 23 securitized loans totaling $152.7 million. As of the same date, the company was primary servicing 5,555 non-securitized loans totaling $40.3 billion. As of Sept. 30, 2022, First National was named special servicer for 146 securitized loans totaling $1.3 billion for five transactions, with no loans in special servicing, and was the named special servicer for 5,555 loans with a balance of $40.3 billion. First National had 14 non-securitized loans totaling $26.8 million in special servicing.
Additional information is available on www.fitchratings.com
FIRST NATIONAL CORPORATION 
