Fitch Ratings - New York - 28 Aug 2020: Fitch Ratings has upgraded the commercial mortgage primary servicer rating of Bellwether Enterprise Real Estate Capital, LLC (Bellwether, or the company) to 'CPS2+' from 'CPS2'.

KEY RATING DRIVERS

The upgrade of the primary servicer rating reflects Bellwether's seasoned tenure and experience of the management team and staff, consistent low employee turnover, continued investments in technology and automation and dedication to internal controls. The rating also reflects its robust training program, the internalization of insurance analysis and processing, a new strategic partnership with Fifth Third Bank and a 12-year history of primary servicing commercial real estate loans.

In 2020, Bellwether formed a strategic partnership with Fifth Third Bank through which Bellwether is able to offer construction and short-term financing options to its borrowers while Fifth Third is able to offer Bellwether's permanent financing loan products. Through the partnership, Fifth Third purchased a minority, non-controlling interest in Bellwether, although there was no change to the leadership or operations of Bellwether. Both companies are active in the commercial real estate and multifamily sector.

For the fourth consecutive year, Bellwether increased its primary servicer staff count, bringing it to 78 servicing employees, adding bench strength in asset management, insurance and loan operations. Overall employee turnover, which is historically very stable relative to other Fitch rated servicers, remained low at 5% in 2020, slightly down from 7% at Fitch's prior review. Servicing operations comprises a 20 member management team that averages 27 years of experience and supports 58 staff level employees who average 15 years of experience. Although the company has only been in existence since 2008, much of the management team were key employees and worked together at a previous servicer. The servicing staff completed an average of 52 hours of training in 2019, routinely among the highest of Fitch rated servicers.

The company continues to make significant investments in technology to support growth with a multi-year initiative focused on process automation, data accessibility and client experience. The company utilizes third party optical character recognition software to expedite data input for financial spreading which saves asset managers over 5,000 hours per year allowing more time for analysis. Additionally, the company integrated its primary servicing system of record with its document management system, customer relationship management system and borrower request platform. The company internally developed a workflow management tool, which tracks borrower consent turnaround times, status of requests, comments of last contact and various parties and fees as related to each request. IT support is provided by a team of approximately 20 professionals focused on expanding the use of technology to streamline operations and creating a highly secure and reliable network infrastructure.

Bellwether's internal control environment consists of high-level policies and procedures, task tracking and reporting from the servicing application, and management oversight of servicing functions. A dedicated quality control and compliance group performs quarterly reviews to confirm compliance with established policies and procedures. Bellwether leverages its parent company, Enterprise Community Investment, whose internal audit group engages a third-party to perform internal audits of Bellwether's servicing operations, although less frequently than other Fitch rated servicers. Additionally, Bellwether is subject to oversight from multiple master servicers as well as GSEs.

Bellwether continued its geographic expansion by opening new origination offices in Birmingham, Alabama, Nashville, Tennessee, and Washington, DC, in 2019 and added Grand Rapids, Michigan in 2020. This brought the total number of offices to 30, seven of which contain servicing staff. Commensurate with its expansions, Bellwether employed 314 employees as of July 1, 2020 with 78 responsible for servicing. Key employee additions to the company since Fitch's prior review include a new chief technology officer, a director of business development and a senior asset manager. Bellwether also added two insurance analysts as part of the company internalizing insurance analysis and processing except for life insurance loans.

Bellwether is a commercial real estate (CRE) finance company that acts as a correspondent lender and servicer for life insurance companies, pension funds and CMBS lenders. It is also a direct lender for GSEs (Freddie Mac and Fannie Mae) and an approved lender for the Federal Housing Administration and Rural Housing Service.

Bellwether's servicing portfolio grew to 3,564 loans with an unpaid principal balance (UPB) of $26.4 billion as of March 2020 from 3,364 loans with a UPB totaling $22.5 billion in December 2018. As of the same date, the commercial mortgage portfolio comprises life insurance company loans (56% by loan count) government-sponsored entities (GSEs) and the Federal Housing Administration (FHA) and Rural Housing Service (RHS) loans (30%), and CMBS loans (14%). The company originated approximately 700 loans totaling approximately $7.9 billion in 2019 and originations will continue to grow the servicing portfolio given minimal scheduled maturities through 2020.

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At Fitch Ratings Online