Fitch Ratings – New York – 07 Feb 2025: Fitch Ratings has affirmed ColumbiaNational Real Estate Finance, LLC’s (CNREF) commercial primary servicer rating at ‘CPS2’ with a Stable Outlook.

Source

The rating affirmation highlights CNREF’s highly experienced but small management team, associated key person risk and commitment to investing in servicing technology and infrastructure with the recent upgrade to Strategy 20A. The rating also reflects CNREF’s appropriate internal controls, including outsourced annual internal audits, which have a demonstrated history of no findings.

Additionally, the rating reflects the continued strong sponsorship support for the servicing team, the shorter staff tenure, the presence of some manual functions, and the demonstrated expertise in servicing more complex, highly structured loans compared to highly rated peers. CNREF acts as a correspondent lender and servicer mainly for life insurance companies, the U.S. Department of Housing and Urban Development (HUD) and securitized lenders. As of Sept. 30, 2024, life company loans comprised 95% of the total servicing portfolio by loan count, and HUD loans comprised 5%.

CNREF employs 29 individuals, with production offices in Washington, D.C. and Baltimore. The company’s loan originations and servicing portfolio have diversified in recent years, with approximately 66% of loans located in Maryland, Virginia and Washington, D.C. This is down from 79% previously. CNREF has maintained correspondent lending relationships for over 40 years and currently serves 28 different servicing clients.

CNREF has an experienced servicing management team, with two senior managers averaging 30 years of industry experience and 19 years with the company. The seven servicing staff employees also possess strong experience, averaging 13 years in the industry and five years with the company. Historically, CNREF has maintained stable operations with minimal turnover. In the past 12 months, overall turnover was 22% due to two staff-level departures, compared to 21% at Fitch’s prior review. Turnover ratios appear higher due to the small size of the staff.

Since Fitch’s last review, CNREF hired two employees in asset management to accommodate portfolio growth and address recent turnover due to an internal transfer and an expected retirement. Although key-person risk is a concern due to the limited number of employees, Fitch believes the company’s staffing remains appropriate for the size and nature of the servicing portfolio.

CNREF has some of the most experienced management and staff among Fitch-rated servicers and demonstrates proficiency in loan servicing. The company also outsources property inspections and data entry, allowing staff to focus on analytical functions.

Since Fitch’s previous review, CNREF upgraded its system of record to McCracken’s Strategy loan servicing application Version 20A from version 19D. The update includes enhanced GNMA reporting requirements. The company continues to show its dedication to technology enhancements by implementing additional critical cybersecurity updates.

The company employs various quality control measures to provide management with reasonable assurance that daily serving operations comply with the company’s policies and procedures, as well as those of various lenders and servicing agreements. Although CNREF does not maintain separate compliance and internal audit functions typical of larger volume servicers, it engages a third-party vendor to perform servicing audits, which have a consistently shown no findings, and is subject to periodic lender and other external audits.

The company acted as primary sub-servicer for four securitized loans totaling $45.5 million, where it performs primary servicing functions limited to financial statement collection and site inspections, while another servicer performs functions like payment processing. As of Sept. 30, 2024, CNREF’s total servicing portfolio consisted of 825 loans totaling $7.2 billion.

Additional information is available on www.fitchratings.com