OREANDA-NEWS. Fitch Ratings has upgraded the following U.S. residential mortgage servicer ratings for Fay Servicing LLC (Fay):

--U.S. residential primary servicer rating for Subprime product upgraded to 'RPS3+' from 'RPS3'; Outlook revised to Stable from Positive;
--U.S. residential special servicer rating upgraded to 'RSS3+' from 'RSS3'; Outlook revised to Stable from Positive.

The upgrades and Stable Outlook are based on improvements to Fay's internal control environment, experienced management and staff, high touch servicing model, and integrated servicing technology. In addition, the ratings incorporate the financial condition of Fay, a non-publicly rated entity.

Fay is headquartered in Chicago and has three servicing sites in the greater Chicago area, with additional sites in Carrollton, TX and St. Petersburg, FL. Fay is a wholly owned subsidiary of Fay Financial, LLC (Fay Financial), a privately held company. Fay effectively uses outsource vendors for non-core servicing functions including tax and insurance processing and information technology support to allow the company to focus its resources and attention on managing its borrower contact and resolving delinquent and defaulted loans.

Fay has continued to build its internal control environment. The company utilizes the 'three lines of defense' structure similar to large bank and non-bank servicers rated by Fitch. The three lines of defense include quality assurance performed within the operation, quality control performed within the legal and compliance department, and the internal audit function. Internal audit is outsourced to a national professional services firm that provides internal audit, regulatory compliance, fair lending, and loan review services, and to an independent consultant with extensive industry experience. Since Fitch's prior review, Fay hired an executive vice president of internal audit that has over 30 years of industry experience, and re-aligned the internal audit function to report independently to the Fay Financial's board of directors. Previously, internal audit reported to the company's general counsel and chief compliance officer. Fitch views this change positively as it is expected to provide more independence to the internal audit function.

Fay's high touch servicing model utilizes experienced account managers who act as the SPOC with borrowers. Every loan whether current or delinquent has an assigned account manager who handles all of the customer service, collections and loss mitigation interaction with the borrowers for their assigned pool of loans. Account managers average over 13 years of industry experience.

As of June 30, 2015, Fay was servicing more than 26,700 loans totaling $6.3 billion, including more than 20,400 subprime loans totaling $4.3 billion. As of June 30, 2015, Fay's servicing staff had increased to 412 full time equivalent (FTE) employees from 316 servicing FTEs as of the prior review. The use of contract and temporary staff also increased to 15% from 7% during the current review period.

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 report 'Rating U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria', dated April 23, 2015 which is available on the Fitch Ratings web site at 'www.fitchratings.com'.