Rockstead – telling it as it is

Rockstead is a mortgage audit company that emerged out of the credit crisis and has just celebrated three successful years in business. Joanne Atkin asks Brian Pitt, CEO at Rockstead, to explain more about the company

Rockstead was formed in the summer of 2008 when Brian Pitt and Richard Gater were looking for opportunities to bring their combined experience of over 65 years in the lending market to a new venture. They have just celebrated their first three years in business by recruiting more lending experts and announcing expansion plans for 2012.

Joanne Atkin: How did Rockstead come about?

Brian Pitt: At the time we launched, we were facing the prospect of a collapse in new lending, the loss and consolidation of a number of lenders, the drying up of securitisation markets and a flight to lending quality over quantity, which had been driving the market for a number of years.

So the challenge we had was to identify potential gaps in the market to utilise our experience. As the mortgage market began to shut down, a number of good people that had been employed in the sector for a number of years were made redundant and we thought there was an opportunity to bring some of them together into what we now see as one of the most powerful teams in the market.

We continue to grow the team, with our latest recruits being an ex credit/risk manager with a large bank and a senior underwriter from the largest specialist lender over the past 10 years.

We had a vision that as the sector contracted in 2008, outsourcing would become a major part of the re-structuring of the market place and we were right. In the aftermath of the banks’ collapse and the resultant ‘pulling up the drawbridge’ mentality that ensued, we embarked on a campaign to let people know that we had a number of sector specific experts that could be utilised on a short, medium or long term basis to support people’s plans to adapt to fit the new world.

We felt that our lending experience over a number of years would be useful to a number of organisations in the mortgage and loans sector and by providing outsourced technical resource, could help them with cost effective solutions.

JA: What did Rockstead do in the beginning?

BP: The business originally focused on carrying out quality audit and due diligence projects for a number of different lenders in the sector. Some of those had scaled back significantly during 2008/9 and had few people left that completely understood how to manage mortgage portfolios and their third party suppliers within those business relationships.  We were able to give them the re-assurance that we had put together a team of people with the widest range of lending experience, across most sectors of the mortgage and loans market, which would help them to manage their businesses in a compliant and cost effective way.

We were also convinced that retaining our independence was key to developing the business and have stuck to those principles. It is fair to say we have been offered ‘success based’ contracts and turned them down for a number of reasons, including the fact that we did not want to be labelled ‘hired guns’. Our clients appreciate the fact that with the vast experience the team has, coupled with our truly independent position, we can truly add value to their own operations.

JA: Has the firm changed much since the start three years ago?

BP: The past few years have seen vast changes in the way most companies involved in the lending sector operate, with increased focus on controls and compliance. Regulatory pressures have been brought to bear in the form of fines and penalties and the need for both internal and external audit processes has never been greater.

The recent exposure of lender practises that have been criticised by regulators has put a number of other lenders on notice that they need to constantly strive to review process and risk assessment techniques and show that they have appropriate processes in place to measure risk exposure. We recognised those changes and have made sure that as we have grown the business we have employed more people that could help develop a wider service offering than the early days.

JA: You have a small core team, how do you deal with highly specific requirements or large projects?

BP: We are able to bring outsourced specialist expertise to help businesses. We have a core full time employed team of experienced specialist experts in quality audit and due diligence work. The senior members of the team control our database of over 100 other financial services specialists that we can call on to support large projects.

All of the people we employ have over five years experience in the sectors in which our clients are looking for support. We would, for example, ensure that if we were carrying out a TCF review on a lender’s collection process, we would ensure that former collectors formed part of that team.

JA: What are the main services you provide?

BP: Specific services that we provide include audit and due diligence work, where audit services are primarily provided to lenders, holders of mortgage assets, investment banks and hedge funds.  That audit work ranges from the review of assets originated on individual funding lines to the assessment of large portfolios of diverse and complex assets.

In addition we carry out oversight functions on behalf of customers who require independent assessment of third party suppliers.  These suppliers cover the complete value chain of the mortgage and loan industry from asset managers to mortgage servicers and administrators

We also provide independent expert witness services designed to assist the courts in providing analysis of lending files.  Expert witness services are provided to lenders, solicitors and insurance companies active in the professional indemnity markets.  This service covers a very broad range of circumstances from single residential lending to groups of connected loans and complex commercial lending.

In view of the significant mortgage and financial services experience throughout the business, we also provide advice on, and the assessment of, business re-structuring. A recent example included reviewing operations within a solicitor firm to review the strategy, bring processes in to create operational efficiency and prepare it for possible merger and acquisition opportunities.

In another example we were asked to review and update a lender’s underwriting and processing manuals to ensure they were TCF compliant.

JA: What impact has the drying up of the sub-prime market had on your business?

BP: It hasn’t really affected us at all. We have expertise across all aspects of the mortgage market and it doesn’t really matter to us what sector we are asked to help in, we are confident that we can help.

A couple of years ago, there was drive from some of the popular press for lenders to ‘fess up’ with regard to quality of the assets they were holding. This was in response to the demise of the sub-prime mortgage sector and the fact that a number of lenders had bought sub-prime assets from other originators; and there was a general feeling that such assets were ‘toxic’.

In discussions with a number of buyers of these assets it was clear to us that some had carried out limited or inappropriate amounts of due diligence when buying them. Some had used their own staff to carry out the audit work in the process and were now facing the prospect of trying to justify why independent verifications had not been carried out.

Of course, hindsight is wonderful but it is clear that in future more stringent audits will have to be carried out to ensure that at least the buyer knows the real value of what he is buying. Due diligence exercises have become more important to confirm the quality of the asset and the expected performance characteristics. Rockstead is well placed to help in such situations.

JA: We are in an era of restrictive lending, do you think that will change?

BP: In the current climate, lenders’ appetite for risk seems to have disappeared with tightening of criteria, the restriction of loan-to-value and the complete exclusion of some previous product lines. Some would say too little, too late and had lenders paid attention to the quality of business rather than quantity of business written in the past, then maybe they would not be in the situation they are today. Not the case, in my opinion, because it really was the drying up of funding lines and securitisation routes that was the catalyst for restrictions on lending.

It is clear that to stimulate the mortgage market again, the availability of funding techniques and confidence in mortgage backed securities needs to return. Real product innovation will not return until the market has started to move and there is confidence once again in the residential mortgage market.

When the market does return, and it will, I cannot see us getting back to the loose underwriting excesses we have saw over the period of 2000 to 2008.  What is for sure is that the regulator (in whatever form that takes) will pay a lot more attention to what is going on in the lending sector, including buy-to-let, commercial and bridging finance and lenders themselves will want to demonstrate a prudent approach. Rockstead is ready to help with expert input.

JA: What are Rockstead’s plans for the future?

BP: Rockstead’s expansion has been rapid over the three years since the business was created and plans are in place to continue that growth in to the future.  Growth plans can only succeed when built around good people and we have a great team of people already. But we have already moved to larger premises within the last 3 months to allow for additional recruitment in the new year.

We are currently looking for a senior person to join the team at a Director of Operations level and that role will include the responsibility to recruit more skilled experts to satisfy our growth plans.

In 2012 we plan to do more due diligence work in Europe, having already been given the opportunity to review a mortgage portfolio in eastern Europe in preparation for sale.

The people behind Rockstead

Brian Pitt and Richard Gater are well known in the mortgage market, having both served their time with a number of lenders over the previous 30-plus years. Brian has a history of being involved in mortgages going back to 1972 with a career that started at Halifax Building Society. He progressed through a number of lending start ups with centralised lenders in the 1980s culminating in senior board positions in the specialist lending sector over the past 15 years.

Richard’s experience is considerable too, having worked with high street and investment banks both in the UK and across Europe in various credit and risk roles, as well as centralised lending experience in the UK.

Brian Pitt commented: “We also believe that having a credible board brings value to our proposition and we certainly have that. There are four non-executive directors, who all bring vast amounts of personal experience and input into the Rockstead proposition.

"They are Steve Haggerty, former CEO of HML, part of the Skipton group, Mark Clarke, former senior executive at Morgan Stanley and CEO of Advantage Homeloans, Nick Baxter, a former assistant general manager at C&G who also runs his own consultancy business and mortgage club and Jamie Richardson, a marketing and communications expert.”

With that experience it is not surprising that they have quickly established a reputation for their technical knowledge, backed up by a ‘tell it as it is’ style.