Fairbanks Removed from Watch Status

Fitch Ratings has removed Fairbanks Capital Corp.'s servicer ratings from "rating watch negative" status, where they were placed last October following widely publicized accusations of improper loan servicing and collection practices.

And while Fairbanks reached a settlement regarding those complaints with federal regulators last fall, several states still have outstanding "inquiries" into the Fairbanks case, Fitch noted.

Fitch said Fairbanks is working closely with these remaining states and has established reserves for estimated damages, though it is impossible to predict the financial impact of these unresolved investigations, the rating agency noted in its recent report on Fairbanks. However, Fitch senior director Kathleen Tillwitz said Fairbanks' previous settlements have fallen within its estimated range of costs.

Fitch plans to monitor Fairbanks and conduct another onsite review in six months, at which point Fitch will analyze whether or not any upgrades are warranted.

"At this current time, we are just removing them from negative watch based on all of the changes that they have made," Ms. Tillwitz said. "The process and procedural changes appear to be working."

Fairbanks CEO James Ozanne, in a written statement, said the company is encouraged by the action of Fitch Ratings.

"We have made significant improvements across Fairbanks' loan servicing operations, putting in place what we believe are leading edge practices for the nonprime servicing industry. Through regular reviews, we believe Fitch, and others, will be able to measure the increasingly positive effects of these changes," Mr. Ozanne said.

Fitch affirmed Fairbanks "RPS3-minus" residential primary servicer ratings for subprime and home equity products and "RPS3" rating for alt-A loans as well as its "RSS3" rating as a special servicer.

Fitch said the rating action is the result of an onsite review of Fairbanks three servicing facilities, located in Utah, Florida and Pennsylvania. Fairbanks is scheduled to close its Austin, Texas, facility at the end of March.

Fitch officials concluded that the restructured senior management team has identified, initiated, and in many cases completed making changes needed to correct the deficiencies noted in Fitch's prior review, conducted in May of last year.

In addition, to address a concern that Fitch identified at a later date, Fairbanks revised its thresholds for properties requiring reconciliation of broker price opinion values to be more consistent with industry standards. Fitch had criticized an earlier Fairbanks policy of dealing with a backlog of BPO orders by pushing them through to foreclosure without a new valuation estimate.

Reforms that have been made include systems upgrades, compliance training, increased internal audits, a new department that reviews loans prior to foreclosure, implementation of a consumer advocacy department, enhanced oversight and controls to ensure timely posting of payments, and a one-call resolution approach to customer service, Fitch said.

In November of last year, Fairbanks entered into a $40 million settlement with the Federal Trade Commission and the Department of Housing and Urban Development to settle charges that the company engaged in overly aggressive collection practices and charged improper fees to borrowers. That investigation was sparked by news reports in Maryland that led to political pressure on federal regulators to conduct an investigation.

Fitch later reduced Fairbanks servicer ratings, which had at one time been among the top in the industry.

"Fairbanks has made substantial progress in a very short time and to date the audit results, performed by independent parties, have been encouraging, which has resulted in Fitch removing them from Rating Watch Negative," the rating agency said in its report.

Another issue Fairbanks will have to deal with is its shrinking portfolio. The company's ability to acquire new business has been hampered by the ongoing controversy.

Fairbanks specializes in the servicing and resolution of subprime, alt-A, home equity and nonperforming residential loans. At the end of last year, Fairbanks' servicing portfolio consisted of 423,000 loans for over $40.9 billion, a decline of 24% in the number of loans from a year earlier.

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