Fitch Ratings has affirmed the following servicer ratings for PennyMac Loan Services, LLC (PLS), an indirect subsidiary of PennyMac Financial Services, Inc. (PennyMac).

U.S. primary prime servicer rating at 'RPS3+'.

U.S. special servicer rating at 'RSS3+'.

The rating Outlook has been revised to Positive from Stable for the primary prime servicer rating, and affirmed at Stable for the special servicer rating.

RATING ACTIONS

Entity / Debt

Rating

Prior

PennyMac (RMBS)

RMBS Primary Prime Servicer

RPS3+

Affirmed

RPS3+

RMBS Special Servicer

RSS3+

Affirmed

RSS3+

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of 1

VIEW ADDITIONAL RATING DETAILS

Key Rating Drivers

PLS's affirmed ratings and accompanying Outlooks reflect the company's strong post-pandemic performance, highly effective technology and cybersecurity platform, comprehensive internal control environment and satisfactory loan administration performance metrics. The ratings also reflects PLS's tenured senior management team and staff, strong vendor oversight, solid homeowner retention efforts and management's focus on promoting a continuous improvement culture designed to drive operational and technology enhancements in support of the company's growth strategy.

Call volume escalated during 4Q21 into 1Q22, due mostly to forbearance exits and loan modification activity. Call center performance has largely stabilized in 3Q22. Initially, 90% of the workforce migrated to a work-from-home environment that has been reduced to about 33%. PLS facilitated more than 326,000 forbearance plans for borrowers of which 83% were completed via self-service automation. A total of 1.6 million forbearance check-ins have been completed with 69% done via web automation, and 193,00 streamline and 20,000 full document loan modifications have been completed as of June 30, 2022.

PLS has effective risk management controls in place that are built upon a three lines of defense strategy, consisting of quality assurance, quality control and internal audit. The risk management framework is well-defined, clearly delineating responsibilities across different teams and within the lines of business. A review of the company's internal audit reports did not reveal any material findings and both the Regulation AB and SOC 1 reports for 2021 did not reveal any findings. PLS reported a total of 417 CFPB complaints during the 12-month ending June 30, 2022 which is considered acceptable in consideration of PLS's portfolio size.

The company reports loan administration performance metrics that are competitive with, or superior to, peer group and industry averages. The company's cash processing and investor accounting and reporting areas are highly automated with solid performance metrics. Escrow administration is similarly well-automated and risk is minimized by effective oversight of vendor relationships and internal performance metrics. Call center performance metrics are acceptable. Default administration metrics in collections and homeownership retention are comparable to or exceed industry averages, while bankruptcy and foreclosure case handling, tracking and performance monitoring are efficiently managed.

Technology innovation remains a key corporate strategy at PLS. Since Fitch's last review, the company's technology investments have included continued application development and enhancements to its proprietary Servicing Systems Environment (SSE), a cloud-based servicing system that houses borrower account data and is supported by ancillary proprietary applications. Proprietary software applications in use at PLS include workflow management tools, a loss mitigation application, default administration case tracking and electronic storage and rendering.

Network security is addressed via an annual risk assessment, and intrusion testing is performed both internally and through a third-party vendor several times a year. A central access management group administers password administration protocols including periodic user access reviews. Disaster recovery and business continuity is achieved via remote work capabilities and/or load balancing between the company's four servicing sites.

Headquartered in Westlake Village, CA, PLS performs servicing functions at four sites in the U.S. located in Moorpark, CA; Plano, TX; Summerlin, NV; and Fort Worth, TX, and uses third-party business process outsourcers based in India and the Philippines, comprising about 26% of its workforce. As of June 30, 2022, PLS serviced about 2.1 million loans totaling about $527 billion. Fitch does not publicly rate the credit and financial strength of PLS or its parent, which serves as a constraint on its servicer ratings.

Fitch rates residential mortgage primary, master and special servicers on a scale of 1 to 5, with 1 being the highest rating. Within some of these rating levels, Fitch further differentiates ratings by plus (+) and minus (-) as well as the flat rating. For more information on Fitch's residential servicer rating program, please see Fitch's 'Criteria for Rating U.S. and Canadian Residential and Small Balance Commercial Mortgage Service,' dated February 2020.

Additional information is available on www.fitchratings.com

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