Rationale

S&P Global Ratings' rankings on Bank of America N.A. (BANA) are ABOVE AVERAGE as a residential mortgage loan primary and subordinate-lien servicer and AVERAGE as a residential mortgage loan subprime servicer. On Oct. 24, 2024, we affirmed the rankings (please see "Bank Of America N.A. Residential Servicer Rankings Affirmed; Ranking Outlooks Stable," published Oct. 24, 2024). The ranking outlook is stable for each ranking.

Our rankings reflect BANA's:

• Investment in technology across operations to improve efficiency and controls;
• Continued sound oversight of the servicing operation, which includes multiple levels of internal controls;
• Well-tenured management and staff, with low turnover;
• Generally sound and seasoned core loan administration processes with the infrastructure to support the prime, subprime, and subordinate-lien portfolios;
• Delinquency metrics that remain competitive with peer averages for its prime and subprime portfolios and better than peers for its subordinate-lien portfolio; and
• Lack of targeted collection strategies for the subprime portfolio.

Since our prior review (see "Servicer Evaluation: Bank of America N.A.," published Dec. 1, 2022), the following changes and/or developments have occurred:

• BANA realigned the mortgage, vehicle, and specialty operations division along process lines rather than by product to better leverage technology and best practices across product lines.
• Business controls transitioned to a new enterprise issues management application for tracking and reporting issues and the associated remediation plans.
• A quality assurance (QA) playbook was launched to standardize QA execution and sampling across BANA's global operations.
• An auto-capture and auto-resolution widget for complaint tracking was introduced to customer-facing groups.
• It completed a multiphase project to modify its online payment options to allow borrowers to direct extra funds to escrow or principal.
• Functionality to improve the customer experience was implemented in the escrow area, including updating escrow statements with simplified language, the addition of escrow-related enhancements to the website, and the development of a quick-reference guide for agents handling customers' escrow inquiries.

The ranking outlook is stable for each ranking. The servicer rankings and ranking outlooks reflect our view that BANA maintains an appropriate level of management oversight and technology and has sufficient internal controls to identify and remediate issues to service the portfolio efficiently and effectively.

In addition to conducting an on-site meeting with servicing management, our review includes current and historical Servicer Evaluation Analytical Methodology (SEAM) data through June 30, 2024, as well as other supporting documentation provided by the company.

Profile

BANA is an international financial institution providing banking, investing, asset management, and other financial services to individual consumers, small businesses, and large corporations. It has approximately 3,800 retail centers in the U.S., serving approximately 69 million consumers and small business clients. The mortgage and vehicle servicing operations manage the bulk of the servicing functions.

Although BANA's portfolio is declining (see table 1), its strategy continues to focus on organic growth and working with its existing customer base. California loans make up a larger part of the portfolio than other states (see table 2). In our view, concentration in any one state introduces a level of risk during an economic down cycle. The investor makeup varies by portfolio type. The prime portfolio is primarily split between government-sponsored enterprise loans and loans held in the bank's portfolio. The bulk of the subprime portfolio is comprised of mortgage-backed securities whereas the bulk of subordinate liens are held in portfolio (see table 3).

Table 1

Table 2

Table 3

Management And Organization

Our subrankings for management and organization are ABOVE AVERAGE for residential primary, subprime, and subordinate lien servicing.

Organizational structure, staff, and turnover

BANA's residential mortgage servicing organizational structure is part of its mortgage, vehicle, and specialty operations (MVSO) division headed by a senior vice president with 12 direct reports. BANA's customer service and collections are centralized functions outside of the MVSO but have teams dedicated to mortgage. As of June 30, 2024, BANA had a total of 2,899 full-time-equivalent servicing employees. BANA's servicing operations are in 10 U.S. locations and offshore sites in Mumbai, Hyderabad, Gurugram, and Gandhinagar, India. The India locations perform numerous back-office administrative functions (including QA) for the servicing operation, with no customer-facing activities.

In April 2024, after a yearlong review, the MVSO reorganized as a process-aligned organization from a product-aligned one to better utilize best practices and technology within processes. Even with this change, there are product-specific teams within most of the process-aligned groups. While we recognize the benefits of combining groups, maintaining staff dedicated to the mortgage portfolio is key to our ranking.

Average tenure for senior management is 19 years and just under 18 years for middle management, both slightly longer than the average of similarly ranked peers. BANA does not track management or staff experience levels. There was no management turnover and overall staff turnover was 1.24%, which are both better than the rates reported by peers.

Training

We believe BANA has an effective training program for its management and staff. It uses a learning management system to manage content, assign, and track employee training. Features of the training program include:

• Enterprise training courses, including compliance courses, are required of all BANA employees, as well as all vendors who handle, review, or have access to confidential or proprietary information.
• There is role-based new-hire and annual training.
• New manager training is available for those moving from an individual contributor to a manager role.
• There is ongoing manager excellence training, which provides monthly training sessions, generally via live web sessions, on different management-related topics.
• Offshore staff have training assigned and monitored through the learning management system.
• There are no dedicated servicing trainers. Line-of-business training is facilitated by business leaders and subject-matter experts.

Systems and technology

BANA has effective technology to meet its servicing requirements. Its servicing systems are managed at the enterprise level with a team dedicated to its retail, small business, wealth management, and commercial banking businesses within the banking and lending product technology group. Additionally, BANA has well-designed data backup routines and disaster recovery preparedness.

Servicing system applications 

Black Knight's mortgage servicing platform (MSP) servicing system is BANA's core servicing platform. In addition to MSP, it utilizes a mix of proprietary and vendor applications (see table 4). It plans to implement the first stage of a new loss mitigation platform, Back In the Black, in November 2024 with trailing work to be completed by first-quarter 2025.

Table 4

Business continuity and disaster recovery 

BANA's disaster recovery and business continuity plan is managed at the enterprise level by the global business continuity and recovery organization. BANA uses a redundant site and device-routing process in which disrupted services automatically redirect to the designated alternate system or site for those functions identified as critical. Data centers are in Texas, Virginia, Pennsylvania, and New York. Critical customer data and application services are backed up electronically and to physical tapes, and intraday transactions are recorded to allow recovery to the point of a disaster. The lines of business update the business impact analyses, in conjunction with its recovery plans, on an annual basis. The criticality of a function is based on this analysis and determines recovery time and recovery point objectives, as well as the testing frequency. All functions and supporting technologies are tested, with critical functions tested annually at a minimum. All test results are reported to senior leaders and stakeholders. BANA completed a series of failover and contingency tests of its data centers since our prior review. BANA did not provide the results of that test but did indicate that there were no material issues identified.

Cyber security 

BANA's IT security program is managed around the clock by its global information security (GIS) team. The chief information security officer oversees the GIS team, which is comprised of approximately 3,200 members. Factors we considered in our analysis include:

• Security operations centers are positioned in each region BANA has operations.
• An incident management team is in place to respond to cyber threats.
• There is continuous enterprise scanning to identify known threats and vulnerabilities.
• It conducts user access control reviews annually for employees and quarterly for contractors.
• An internal team performs annual penetration testing.
• The last penetration test was conducted on Oct. 23, 2023, with no material issues cited.
• Phishing simulation exercises are performed quarterly, which is less frequent than similarly ranked servicers.
• Antivirus updates are automated.
• There are remote desktop policy enforcement audits and tests to ensure compliance with all security standards.
• Monitoring of email is conducted for content and appropriate encryption.
• There are controls to prevent nonpublic information from being sent by email.
• Tabletop testing of its cyber breach incident response plan is performed at least annually.

Despite servicers expenditure on cyber security staff and systems to support their programs, these preventative measures are only effective if the program is successfully implemented and maintained. Notwithstanding, even the best preventative measures will be continuously challenged by the ever-increasing sophistication of attacks.

Internal controls

The enterprise risk management program is managed within a framework approved by the board of directors and includes business unit, independent risk management, and corporate audit functions. BANA uses a governance, risk, and compliance system for tracking and managing issues as well as a single process inventory (SPI), which includes all processes across the company to link to the associated controls and data attributes. The SPI is used across the lines of defense in risk assessments and testing scope development.

Policies and procedures 

BANA's procedures and standards unit is part of the procedures, remediation, and data validation group and is responsible for the development and change management of procedures across business lines. Having an enterprise-wide group managing these documents promotes consistency across business functions and a cohesive customer experience. The procedures and standards are maintained in a web-based repository. The repository can deliver content in multiple formats including text, video, and animated graphics.

BANA has good controls for developing and updating procedure manuals. Functional and process highlights include:

• Manuals, which we believe are well-written, include an overview, glossary (as applicable), and logical process flows.
• Standards are tied to the regulatory requirements associated with them.
• Technical writers are aligned to specific business lines and draft revisions in partnership with the line-of-business subject-matter experts.
• Procedures are reviewed every 12 or 24 months based on a risk ranking.
• There are required management or legal approvals, or both, for substantive changes.

BANA has a centralized letter team under the Enterprise Transaction Services organization to manage client communications at an enterprise level. The centralized letter team is responsible for maintaining the letter library and the associated change management process. An application is used to create, revise, track, and store the customer correspondence library. The regulatory requirements provided by the letter owner are notated in the application. BANA's correspondence governance process requires a legal, risk, and compliance review of all new or updated letters. Additionally, periodic reviews are performed every 18 months.

Quality assurance (and call monitoring) 

The Enterprise Independent Testing (EIT) group is responsible for post-production testing across the company. Key aspects of its responsibility include:

• The EIT group manages the independent testing inventory.
• It performs QA testing, using statistically valid sampling and standardized checklists, and retains the testing plan and results in a centralized system.
• QA results are aggregated by the EIT group, and issues are reported monthly to the front-line units and partners.

The Business Controls team within the MVSO are responsible for various aspects of the first line of defense including:

• It produces risk control self-assessments.
• In-line testing is performed to ensure compliance with regulatory, investor, and internal policies and requirements.
• It performs oversight of regulatory and process change control.
• Sustainability testing is performed on new or modified controls and processes.
• It uses the enterprise issues management application for tracking and reporting of issues and the associated remediation plans, a change since our previous review.

Since our prior review, the Business Controls team helped launch a QA playbook, which includes guidance on QA execution and sampling for consistency across BANA's global operations.

A dedicated QA call monitoring team monitors any customer-facing group, including third parties. As with the QA process, this function was transferred to the EIT group. This team performs call monitoring on a minimum of four customer service, seven collection, and five loss mitigation calls monthly per employee. Scorecards are embedded within the call monitoring software, covering both regulatory and soft skills. Results are routed to line managers for review and staff training. Managers and team leads also perform call monitoring in addition to those performed by the QA team.

Compliance and quality control 

BANA's global compliance operating model consists of vertical and horizontal teams. The vertical teams are aligned with business groups and ensure the appropriate tests are performed and the QA testing procedures are in accordance with the enterprise's standard requirements. The horizontal teams are the subject-matter experts of all rules, laws, and regulations for all business lines. The second line of defense uses multiple applications as part of its assessment and overview of risk. These include the single-process inventory system used across the business, which houses processes and associated controls, monitoring results, testing, and operational losses. Additional components of BANA's compliance model include:

• An impact assessment process for all changes to regulatory and investor rules is in place.
• There are annual risk assessments for servicing operations with targeted assessments performed as needed due to operational or risk environment changes.
• There is routine monitoring of mortgage servicing metrics, including key risk indicators, QA results, phone monitoring, vendor scorecards, complaints, and training.
• Transactional testing is based on compliance-developed test scripts, which are performed by an independent team in EIT (separate from the EIT QA testing team);
• It manages compliance training requirements, including content and front-line unit training assignments.
• There is a review and challenge process of first-line-of-defense QA and risk assessment programs.

Internal and external audits 

The audit team is independent of any of the business units and reports directly to the board's audit committee. Audit results and remediation plan status are reported to management and the audit committee. For its risk assessment, BANA takes into consideration the business-entity risk along with the process-level risk. The risk assessment, which includes a review of strategic, credit, market, liquidity, operational, compliance, and reputational risks, drives the frequency of the review cycle. Based on the risk, the process is reviewed on a one- to four-year cycle. In addition to the review cycle, BANA performs some continuous audit activities through automated testing. Audit reports are issued with a rating for each process rather than an overall rating for the business entity.

Other attributes include:

• An annual audit plan is developed based on the risk assessment along with business strategies, industry trends, and external risks.
• Processes are graded on control effectiveness as "satisfactory", "needs improvement", or "unsatisfactory" and are aligned to a business entity.
• A four-tier rating ("severity 1", "severity 2", "severity 3", and "regulator identified") is applied to issues within the report.
• Quarterly reports detailing the plan status and results of the audits are discussed with management and the audit committee.

We reviewed 17 audit reports published since our prior review. While none of the reports included material findings, two were rated "needs improvement". While the servicer provided copies of the audits for review, only a summary of the remediation status was provided. Remediation plans were noted as being closed, in sustainability validation, or on target for completion.

We were provided the Regulation AB (Reg AB) attestation and the Uniform Single Attestation Program statement for 2023, neither of which disclosed an area of noncompliance.

Complaint management

Complaints are managed within the business units, but the complaints enterprise process oversight team is responsible for the governance, monitoring, and oversight of the front-line unit's complaint management process, as well as compliance to standards. The complaint management process and structure include:

• An enterprise-wide system of record is used for all complaints.
• Complaint management oversight is conducted to ensure timely resolution and quality documentation.
• A review and reporting of complaints, including root cause analysis, monitoring of themes, and follow-up actions, are performed monthly with all lines of business and senior executives.
• Complaint trends are aligned at the process level and a tool is used to send specific complaints to the process owner to increase accountability.

In May 2024, BANA introduced an auto-capture and auto-resolution widget into multiple applications used by its operational groups. A customer-facing agent uses the widget to capture a complaint using menus for complaint types along with commentary. The agent can close the complaint if it is handled on the call or submit a service request, which is associated to the logged complaint, for resolution. At the time of rollout, calibration sessions were held to ensure call center agents were accurately identifying and capturing complaints.

Vendor management

Vendor management is driven by minimum standards established by BANA's global third-party program. The program is managed by front-line units with support and controls provided by the compliance, operational risk, legal, and GIS teams. Enterprise vendor managers, part of the global third-party program team, are responsible for end-to-end vendor oversight.

The business lines own the risk and responsibility for vendor performance and ultimately approve the vendor. All vendors undergo a risk assessment process incorporating information security risks and the risks associated with the product or service, including financial viability. BANA determines vendor risk scores using a risk assessment questionnaire. The global procurement team executes sourcing activities, including implementing contracts on behalf of the business unit. The business unit participates in due diligence to ensure all associated risks are understood before selecting and approving the contract and vendor.

The business units manage vendor performance with oversight and support from the enterprise vendor manager assigned to the specific vendor. Vendor performance management includes:

• Vendor scorecards, including key performance indicators and key risk indicators, are completed quarterly for high-risk vendors and monthly for enterprise-critical vendors.
• Vendor-level quality plans track vendor adherence to the third-party program and include items such as financial assessments, background checks, privacy, and fraud.
• There is issue-management tracking, including documentation of remediation plans and status.

At the time of our last review, BANA had shifted its oversight model so that more vendors would receive virtual rather than onsite reviews. While it indicated that any identification of risk either from global procurement or the front-line unit would trigger an onsite review, there is no formal framework to determine when one is warranted, which we see as a risk.

The vendor management group reports on vendor performance at a third-party governance council meeting held twice a month. Material vendor issues are provided monthly to the third-party risk governance council. Any material risk issues involving a vendor are also reported to the board of director's enterprise risk committee.

An attorney network firm management (ANFM) group assists in monitoring attorneys. The ANFM group acts in an oversight role, while the business units perform more of the direct vendor management responsibilities. The oversight performed by the ANFM group includes:

• On-site or virtual firm assessments;
• File transition and termination events;
• New firm on-boarding;
• Attorney certification; and
• Quarterly scorecard production.

Attorney management functions performed by the business units include:

• Monthly scorecard production;
• Financial billing review;
• Communications;
• Watchlist management;
• Capacity management;
• Referral allocation, monitoring, and control; and
• Invoice management.

The review of attorney files was transitioned to the EIT group from the business units since our previous review.

Insurance and legal proceedings

The company has represented that it maintains adequate directors and officers, as well as errors and omissions insurance coverage, given the size of its servicing portfolio.

Management stated that any settlement of a material nature to Bank of America or the servicer have been disclosed in the periodic regulatory filings for Bank of America Corp. with the SEC. The company's 10-Q filed for the period ended Sept. 30, 2024, noted that "based on current knowledge, and taking into account accrued liabilities, management does not believe that loss contingencies arising from pending matters...will have a material adverse effect on the consolidated financial condition or liquidity of the Corporation." For more information, please see the company's SEC filings.

Loan Administration--Residential Primary, Subprime, And Subordinate-Lien Servicing

The loan administration subranking is ABOVE AVERAGE for loan administration as a residential mortgage prime and subordinate-lien servicer, and AVERAGE as a residential subprime loan servicer.

New-loan boarding

BANA's servicing transfer operations was realigned under its core services organization within the MVSO since our prior review. It is responsible for acquisitions, loan sales, loan boarding, and investor change management. Most of its loan boardings are through its origination channels with bulk boardings limited in scope. Highlights and controls of the boarding process include:

• There is electronic boarding of all new loans.
• There was a reduction in the average boarding time to four days from six at the time of our previous review, though it is still slightly higher than the average reported by comparably ranked peers.
• The data-to-document validation is performed by a separate post-closing team.
• The percent of loans with critical data fields validated through a data-to-document review was 72% for flow loans and 18% for bulk loans, both of which are lower than the peer average.
• Flags are used to identify loans for special handling, which are used by the business units to review the loans and validate they are ready for servicing.

Payment processing

BANA has a sound and efficient cash management operation. Highlights and controls of the process include the following:

• Suspense funds are managed through systemic controls and routed to department queues for disposition instructions. An aging report is distributed daily to queue owners to ensure timely posting.
• A reconciliation of funds received to funds posted is performed daily using a reconciliation tool that helps reduce the volume of exceptions requiring manual review.
• The bulk of BANA's payments (95%) are posted electronically and the remaining (5%) are posted manually at BANA's branches.
• Turnover in the payment processing area was minimal at 2%, which is lower than its peers.

In May 2023, BANA began a multi-phased project to update the options for borrowers to direct the posting of their payments via its digital channels, which was finalized in March 2024. This functionality provides borrowers the option to make additional payments towards escrow or principal online. Payment rules were also modified to allow borrowers who are currently in a workout solution to make payments online, which was previously blocked based on payment delinquency status. These enhancements are consistent with functionality we typically observe among similarly ranked peers.

Investor reporting

We believe BANA has appropriate controls over its investor reporting processes, including segregation of duties among reporting, remitting, and reconciliation functions. BANA uses software for reconciliation, which streamlines the process. BANA also services loans for various investors (see table 3).

We factored in the following risk management methodologies and metrics into our analysis:

• The staff turnover rate of 2% is low.
• The electronic investor reporting and remittance rates are 100%.
• The company provides web portal access for investors to download reports, as well as stratify and sort data at the pool level.
• There were no aged reconciling items over 60 or 90 days.

Escrow administration

BANA has escrow accounts on approximately 60% of its prime portfolio, 92% of its subprime, and less than 1% of its subordinate-lien portfolio. BANA manages escrow analysis and insurance loss-draft functions internally, while third-party vendors handle insurance and tax monitoring. BANA had added a second tax vendor prior to our last review but has since consolidated tax management to a single vendor. That vendor assumed the tax call center for BANA in February 2024, while the insurance vendor also manages customer calls, which are monitored by BANA's QA team. Escrow related metrics include:

• The tax vendors abandonment rate of less than 1% was much lower than peers, while the average speed of answer (ASA) of 28 seconds was comparable to peers.
• The insurance vendor's ASA of 78 seconds and abandonment rate of 1.56% are worse than previously reported, although still in acceptable ranges.
• BANA reported non-reimbursable tax penalties of $0.03, which is in line with peers.
• There was no turnover in the escrow department during the period.

The escrow department has a team to handle complex customer situations. The team makes outbound calls to respond to customer inquiries to the call center. Calls are recorded and agents are coached on call management and customer experience.

In addition to the change with the tax vendor, BANA's escrow department has completed the following initiatives since our prior review:

• Escrow statements were updated with simplified language and a summary page of key information for borrowers.
• Quick reference guides for the call center, financial centers, and servicing are available for handling customer escrow inquiries.
• Self-service options were added for borrowers to update insurance carriers and add supplemental tax bills.

Homeowner association (HOA) liens are monitored by a vendor. Liens will be paid, as necessary, to protect the mortgage. BANA uses an attorney firm for HOA negotiations.

Mortgage reconveyance

BANA uses a vendor to manage the lien release process. Requests for releases are automated, and a group within the mortgage servicing operations performs the vendor oversight and research activities. In March 2024, the separate lien release and assignment teams in mortgage and vehicle were combined into a single group. BANA performs a QA check of all manual requests and on a percentage of automated requests. There were no reconveyances processed outside of required timelines.

Special loans administration

BANA's special loan servicing team is responsible for the execution and oversight of specialty products (balloon and step-rate loans) and adjustable-rate mortgage updates. Management has appropriate controls over its adjustable-rate mortgage function, including dual reviews of the indices to validate there are no errors.

A new servicemember operations team was created as a central contact for Servicemember Civil Relief Act (SCRA). This group is responsible for the review and decision making around a request for SCRA relief and the application of those benefits across the applicable products. In addition to responding to requests for relief, BANA proactively applies the benefits when an eligible borrower is identified through its regular status checks of the portfolio.

Customer service

BANA's client services and credit assistance division manages customer service for bank customers, including mortgages. Dedicated customer service resources handle the mortgage accounts and are managed from three domestic sites across the country: Phoenix; Fort Worth, Texas; and Jacksonville, Fla. Skill progression training is in place to enhance agents' knowledge base.

BANA utilizes a client assistance program in response to specific events (such as natural disasters or pandemics), which includes a pre-established workgroup across business units to assist bank customers using foundational playbooks.

Key metrics for customer service considered in our analysis include:

• There was no management turnover, and staff turnover of 16.87% was slightly higher than the peer average.
• The ASA was higher than peers, while the abandonment rate was lower (see table 5).
• BANA performs call monitoring of approximately four calls per associate per month based on performance, which is less than similarly ranked servicers.

Table 5

Default management

Overall, we believe BANA has effective procedures for default management and real estate-owned (REO) assets, efficiently uses technology, and provides satisfactory oversight of its vendor relationships.

We believe that BANA exhibits satisfactory tenure for default management and staff. BANA does not track industry experience for default management or staff. Turnover rates for default management and staff are generally in line with or better than peers except for collection staff, which is higher than peers (see table 6).

Table 6

The prime portfolio delinquency rates increased marginally since December 2022 (see table 7), while the total subprime delinquency increased 1.32% (see table 8) over a decreasing portfolio.

Table 7

Table 8

Collections

BANA's collections teams work out of its Greensboro, N.C., and Chandler, Ariz., sites. The 156-person collections team manages all stages of delinquency up to the foreclosure sale date. A risk score is calculated monthly for each account and is segmented by investor type. The risk score triggers the timing of the collector's initial call based on the number of days the account is past the due date. Prime, subprime, and subordinate liens are placed in collector queues. The collectors work in a blended environment with both inbound and outbound dialer calls. Manual call campaigns to cell phones are also utilized where they do not have consent to call using the dialer. Queues are set up for special handling, including escalations, employee home loan assistance, foreign language, and global wealth management. BANA uses text and email to reach out to borrowers as part of its non-voice contact strategy.

The department's characteristics, processes, and metrics include:

• Seven calls are monitored per associate, which is slightly higher than its peers.
• The overall right-party contact rate of 3.24% is much lower than the peer average.
• The ASA was better than peers, while the abandonment rate was comparable (see table 5).
• Its promise-to-pay success rate for accounts that were 30 days delinquent (82.92%) was better than peers, while the rate for accounts that were 60 days delinquent (71.66%) was lower than peers.

Loss mitigation

BANA assigns a customer relationship manager as an account's single point of contact (SPOC) at the 45th day of delinquency. The SPOC helps the borrowers through the workout process. When documents are received from a borrower, the income is calculated by an underwriter who uses the decision engine to determine the workout options. BANA performs an in-line QA review of income calculations on 100% of the loans. Additionally, it reviews approved and denied workouts on a targeted sampling basis. BANA also has a return-to-normal servicing team, which reviews and validates the completion of the modification.

In our view, BANA has appropriate controls for managing its loss mitigation processes. A process-owner role, reporting to the senior vice president of mortgage servicing platform and programs, is responsible for the oversight, development, and execution of mortgage solution strategies, including identifying and implementing planning for process improvements.

The department employs various workout solutions, which it manages through its proprietary loss mitigation decision engine (see table 9), although it is transitioning to Back in the Black, which is expected to be completed in early 2025.

Table 9

BANA reported an average of 10 days to a workout decision for prime and subordinate liens, and an average of 11 days for subprime, all of which have improved since our prior review and are faster than those reported by peers. While the loss mitigation ASA of about 30 seconds was higher than peers, the abandonment rate was 1.41%, both of which we consider to be acceptable (see table 5).

Foreclosure and bankruptcy

BANA has several processes in place to ensure it appropriately processes legal actions. Foreclosure cases are managed by BANA staff, who oversee and manage the milestones required to be completed by both BANA and outside counsel. Since our prior review, bankruptcy operations, which had previously been realigned under the MVSO, was combined with the foreclosure and post-sale operations group. BlackKnight's LoanSphere system is used as the attorney workflow system for foreclosure and bankruptcy, with the transition of that team to the platform since our prior review. Highlights and controls of the process include:

• Prior to foreclosure referral, the foreclosure referral review group completes two separate reviews validating that all necessary requirements to refer the loan have been completed.
• Exception reports track foreclosure holds, file-aging, and any issues or illogical items in reporting.
• Loans are certified prior to going to sale, including validation that all regulatory and investor requirements were met.
• An impediment management and clearing process resolves foreclosure holds.
• All loans undergo SCRA compliance checks at various points throughout the foreclosure process.
• There is daily monitoring and management of inventory and service-level agreements.
• BANA reported no claims curtailments, which is an improvement over its historical rates and in line with peers.
• All proof of claims and motions for relief (MFR) are reviewed and validated prior to filing. MFRs are now fed directly into the QA platform for review.
• Specific loss mitigation specialists handle workout options for borrowers in bankruptcy.
• Prior to closing the bankruptcy module on an account, a final review of all cash posting is completed.
• BANA reported that no proof of claims were rejected, which was in line with peer metrics.
• An automated bankruptcy welcome letter was deployed since our prior review.

In addition to the realignment of bankruptcy since our previous review, default services also include:

• Electronic imaging was introduced for bankruptcy documents, which reduced duplicate work and streamlined the process.
• Senior lien monitoring was incorporated into the LoanSphere workflow.
• The attorney referral process within LoanSphere was enhanced, including adding a step within Black Knight Financial Services for attorneys to identify missing documents at referral and to launch tasks to retrieve those documents.

Real estate-owned

BANA utilizes a dual-path approach of marketing REO properties through both retail and auction channels. It uses two vendors to handle asset management. A community revitalization and donation program continues through targeted donations of certain assets to local nonprofit groups or municipalities. All functions related to closing and post-closing are centralized within one area. Asset disposition attributes and metrics include:

• It uses an internal tracking tool that monitors property-related escalations, such as code violations, complaints, and demolition.
• Multiple pipeline reports are monitored to manage operational key performance indicators.
• Vendor oversight is achieved through monitoring of service-level agreement dashboards, scorecards, and weekly vendor meetings.
• Average inventory turnaround times are 256 days for prime, 128 days for subprime, and 541 days for subordinate-lien assets.
• The gross sale-to-market-value ratio was approximately 97% for prime, 86% for subprime, and 105% for subordinate-lien assets.
• The overall loss severity is 86%, 45%, and 101% for prime, subprime, and subordinate liens, respectively.

BANA has low REO inventory, resulting in limited liquidations. While its sale-to-market value ratio was generally better than peers, its overall loss severity was worse.

Residential subordinate-lien ranking

BANA's subordinate- and unsecured-lien management team monitors the subordinate-lien portfolio. The portfolio includes closed-end loans and home equity line of credit (HELOCs). As of June 20, 2024, the subordinate-lien portfolio contained 328,057 loans with approximately $15.9 billion in unpaid principal balance (see table 1). The bulk of the portfolio (about 96% by units) is comprised of HELOCs. The subordinate-lien portfolio's delinquency rates have continued to improve since our prior review (see table 10).

Table 10

Highlights and controls of the process include:

• Black Knight's MSP is the system used to service subordinate liens; however, any lien with a senior lien in foreclosure sale is monitored in LoanSphere as well.
• Credit line freezes can be applied to accounts by multiple teams across BANA and for various reasons, including account delinquency, collateral risk, bankruptcy filing, and fraud.
• The specialty loans team performs any loan maintenance on HELOCs.
• Borrowers can access their available equity through digital transfers, convenience checks, ATMs, BANA branch offices, a credit card attached to the account, and through BANA's online bill pay system.
• Loans are charged-off either proactively (low-balance delinquent loans are reviewed for charge-off) or reactively (the junior lien is extinguished by a superior lien foreclosure or title curative issue).

A vendor is engaged to perform lien monitoring on the portfolio. When loans go into default, the team obtains and validates the senior lien holder's information, as well as the property value. Delinquent subordinate liens are managed through the servicing default group but if the delinquency is not cured, the subordinate- and unsecured-lien management team analyzes the lien to determine the appropriate liquidation path.

Financial Position

The financial position is SUFFICIENT.

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