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New Subservicer Rating Assesses Spectrum of Loan Types

GMAC Mortgage, the nation's second largest subservicer of home loans, has received Fitch Ratings first "subservicer rating" and the company got the top grade of "RPS1" from Fitch.

So what is a subservicer rating and how is it different from an ordinary old servicer rating?

Tom Donatacci, senior vice president of business development at GMAC Mortgage, said the distinction is important because of the volume of loans being originated today that go not to Fannie Mae and Freddie Mac but to private-label securities, increasing the number of investor requirements a servicer has to manage and driving demand for subservicing expertise.

Investors look to an accredited servicer to stand behind the performance of the loan assets over the long term, especially when the housing markets become stressed, he told National Mortgage News. When servicing is performed by a subservicer, that concern about the quality of cash management, investor reporting and collections extends to the company that actually performs those functions.

And with home price appreciation slowing, more attention than ever before is being paid to loan servicing quality. In addition, rising rates and more complicated loan assets also are driving interest in servicer quality and increased servicer surveillance from investors and conduits.

"It's in that set of market circumstances that investors rely more heavily on the servicing of those assets."

That's because special servicing and loss mitigation have the potential to make a big difference in the performance of the asset. But subservicers, who don't own the servicing rights but contractually perform loan administration, carry additional burdens as well.

The servicer rating uses a data set similar to a regular servicer rating, but focuses exclusively on the subservicing book of business and cuts across the product and credit-grade spectrum. And that view across the range of loan products and credit quality is a valuable servicing insight, Mr. Donatacci believes.

"There is a comfort level that comes with this kind of a rating that goes over well with investors," Mr. Donatacci said.

The rating also encompasses a subservicer's systems for customized reporting for various external clients. Mr. Donatacci noted that in today's world, this often entails Web-based reporting capabilities.

"We've got a client relationship management team to really interface between servicing experts and the clients," he said. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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