Fitch Ratings has affirmed Community Loan Servicing, LLC's (CLS) commercial special servicer rating at 'CSS3+.'

RATING ACTIONS

Entity / Debt

Rating

Prior

Community Loan Servicing, LLC CMBS

CMBS Special Servicer

CSS3+

Affirmed

CSS3+

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of 1

VIEW ADDITIONAL RATING DETAILS

Key Rating Drivers

The affirmation of the rating reflects CLS's experienced servicing and asset management staff, the platform's stability during a year of transition given the acquisition of the residential servicing platform by Mr. Cooper, the minimal turnover year over year, continued deployment of a new asset management system, and the company's robust corporate governance structure with three lines of defense. The rating affirmation also reflects the company's financial condition, as well as the firm's historically limited focus on commercial loans (including securitized loans).

Bayview Asset Management's (BAM), CLS's parent company, asset management business was established in 1993, and the company has more than 28 years of experience in purchasing, managing and servicing residential and commercial mortgage loans. Servicing plays a key role in supporting the CRE investment activities of BAM. As of June 1, 2022, CLS sold and transferred its residential mortgage loan servicing platform to Mr. Cooper, which historically comprised about 90% of the company's total portfolio by loan count.

CLS continues to act as special servicer for its large and small balance commercial loans, and retained all critical commercial servicing infrastructure and personnel. The sale was partly driven by CLS's intention to focus on core commercial servicing competencies and to further grow the commercial portfolio in coming years. With the recent sale, CLS has noted that it does not plan to further spin off any of its operational functions in the near term.

Aggregate turnover for the year was 12%, down from 29% at the time of last review and 19% in 2020. Fitch notes that three of the company's five departures were senior management departures related to the Mr. Cooper transaction resulting in management turnover of 22%, all of whom were primarily focused on residential functions. At the same time, the platform experienced one asset management departure year over year, resulting in 10% turnover, consistent with previous years.

Concurrently, CLS has increased its commercial servicing platform headcount to 58, up from 29 at the time of last review. Of the 36 new team members, 27 have been with CLS for longer than a year, having joined the commercial servicing function through internal transfers related to the Mr. Cooper acquisition and equipped primarily with residential experience. The residual nine new employees joined the group at the staff level, averaging 11 years of industry experience.

Fitch notes that CLS maintains an experienced servicing employee base as senior and middle managers average 26 years of experience and 16 years of company tenure, while staff average 18 years of experience and 10 years of tenure at CLS, which are high compared to those of other Fitch-rated servicers. The company also maintains robust asset management resources, with 10 asset managers averaging 22 years of experience and 16 years' tenure with backgrounds in construction loans, development, lending and workouts.

CLS maintains a well-established internal control environment primarily through active employee oversight, including management's use of system exception reporting and quarterly monitoring of employee key performance indicators, in addition to dedicated compliance and internal audit functions. CLS continues the use of robotic process automation and bot technology along with application programming interfaces to perform previously manual sampling for quality control testing. The company's commercial servicing team underwent a partial servicing audit completed in 2022, resulting in no material findings.

CLS's commercial loan workout technology infrastructure is more limited compared to that of other Fitch-rated commercial special servicers, reflecting the historical focus on residential loans. The main asset management system serves as a loan tracking system with no financial analysis capabilities, and a proprietary net present value application provides for some automation of asset management functions but requires manual intervention outside the system.

In early 2023, CLS plans to implement McCracken Financial Solutions Corp.'s (McCracken) Strategy application to support commercial servicing and asset management operations. The company also continues to expand and enhance its proprietary software within its existing asset management system, including the ongoing development of asset management dashboards and other requested features.

As of Sept. 30, 2022, the company was named special servicer for 6,406 non-securitized CRE loans totaling $3.3 billion, up from $1.8 billion at YE 2021. Since YE 2020, CLS's servicing portfolio has increased 45% by loan count, while concurrently increasing in UPB by 88%. CLS has experience special servicing various property types as single-family rental made up approximately 32% (by loan count) of the servicing portfolio, while the remainder consisted of retail (23%), multifamily (14%), and mixed use (14%).

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

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