DBRS Morningstar Confirms Rankings for Wells Fargo Commercial Mortgage Servicing

DBRS, Inc. (DBRS Morningstar) confirmed its MOR CS1 primary servicer and master servicer rankings and its MOR CS2 special servicer ranking for Wells Fargo Commercial Mortgage Servicing (WFCMS or the Company), an operating division of Wells Fargo Bank, N.A. The trend for all rankings is Stable.

WFCMS’ portfolio includes commercial mortgage-backed securities (CMBS) and collateralized loan obligation (CLO) transactions; securitizations involving government-sponsored enterprises/agencies, including Fannie Mae and Freddie Mac programs; warehouse line lenders, and other private investors. The Company also services loans held on parent Wells Fargo Bank’s balance sheet. The Mortgage Bankers Association, in its year-end (YE) 2022 survey of commercial mortgage servicers, ranked WFCMS (including all Wells Fargo Bank portfolios), as the second-largest servicer by volume and largest servicer by loan count.

The confirmed primary and master servicer rankings reflect:

-- WFCMS’ strong management and professional depth. The operation integrates U.S.-based personnel collaborating with a sizable and well-established offshore platform that touches on nearly all servicing functions. In the past 18 months, the Company completed two organizational realignments in which the reporting lines for certain treasury and asset management staff moved from WFCMS to their related Wells Fargo Bank line of business. However, WFCMS continues to demonstrate an effective and cohesive organizational structure. Employee turnover rates, net of internal transfers, for the U.S. platform were relatively moderate over 2021–22.

-- The Company’s multifaceted compliance and audit functions, proactive portfolio management procedures, comprehensive data analytics function supporting all areas, and well-designed training regimen.

-- As a master servicer, WFCMS demonstrates diligent subservicer oversight and auditing practices, sound advancing procedures, and reporting expertise with high accuracy rates.

-- The Company’s solid technology capabilities consisting of well-recognized purchased applications combined with some proprietary ones. The integrated platform includes a mix of internally developed and vendor-supported robotic processes and automated interfaces, which are steadily advancing workflow and asset administration efficiency (including specially serviced loans) through ongoing enhancements. WFCMS has sound testing, data-security, and data-backup practices. It expects the entire technology platform to operate in a cloud-hosted environment by YE2023.

The confirmed special servicer ranking recognizes:

-- WFCMS’ well experienced management team and asset managers. The Company has had no manager-level turnover in the past few years and staff-level turnover has been consistently low.

-- The Company’s successful resolution record over the years for a moderate volume of loan workouts and liquidations, which has principally involved large-loan or single-asset/single-borrower (SASB) CMBS transactions.

-- Solid analytics and controlled, proactive asset-resolution procedures. For technology, WFCMS is transitioning this year from the purchased commercial asset management system (known as CAMS) to the vendor’s upgraded RealINSIGHT application, which is widely used for CMBS special servicing.

As of December 31, 2022, WFCMS’ total primary and master servicing portfolio contained 27,480 loans with an aggregate unpaid principal balance (UPB) of $599.96 billion. CMBS loans, covering 536 transactions (32% SASB), comprised approximately 55.9% of total servicing by UPB and 56.2% by loan count. Other components of the servicing portfolio included 40 CLO transactions and three older collateralized debt obligation (CDO) transactions with an aggregate $126.92 billion UPB and 851 loans, and 293 Freddie Mac-sponsored securitizations with an aggregate $116.71 billion UPB and 5,325 loans.

As of YE2022, WFCMS was the named special servicer involving 180 structured transactions (29 transactions, or 16%, had one remaining loan) containing 3,127 loans with a total UPB of approximately $103.50 billion. This consisted of 85 CMBS transactions (containing 347 loans with a total of $40.15 billion UPB), 83 Freddie Mac-sponsored securitizations (containing 2,559 loans with a total $57.58 billion UPB), and 12 CDO/CLO transactions (11 CLOs and one CDO) containing 221 loans with a total of $5.77 billion. WFCMS also provides special servicing for a balance sheet portfolio.

As of YE2022, the active special servicing portfolio contained 15 loans and no real estate owned assets with a total UPB of approximately $3.49 billion. By comparison, as of YE2021, the active special servicing portfolio contained 12 loans and no real estate owned assets with a total UPB of about $965.3 million. All active specially serviced loans continued to be in securitized transactions.

All rankings are subject to surveillance, which could result in rankings being raised, lowered, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar North American commercial mortgage servicer rankings are not credit ratings. Instead, they are designed to evaluate the quality of the parties that service commercial mortgage loans. Although the servicer’s financial condition contributes to the applicable ranking, its relative importance is such that a servicer’s ranking should never be considered as a proxy of its creditworthiness.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499).

For more information on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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