Fitch improves HML’s ratings

Fitch Ratings has removed rating watch negative (RWN) on all servicing classes of Homeloan Management Limited (HML) and has upgraded its special servicer rating.

Both the UK residential primary (prime) servicer rating and the UK residential primary (sub-prime) servicer rating have been affirmed at 'RPS2+'. While the UK residential special servicer rating has been upgraded from 'RSS2-'to 'RSS2'.

The agency has also assigned HML Irish residential mortgage primary servicer ratings of 'RPS2(prime)' and 'RPS2(sub-prime)'.

Rating watch negative

On 10 November 2011, Fitch placed HML's UK servicer ratings on RWN. This was due to departures from HML's senior management group and the downgrade of its parent company, Skipton Building Society, to 'BBB'/F3/Negative.

Fitch’s decision to remove the RWN is based on the fact that HML's new executive team structure has been established and all vacant positions have been filled. Furthermore, Fitch has conducted stress tests on the financial condition element of the servicer rating.

Special servicer rating

The upgrade of the special servicer rating reflects the increasing amount of experience gained as a special servicer. The team has gained practical experience through servicing 32,803 loans with a value of £3.95 billion consisting of securitised portfolios totalling £2.1 billion as at the end of December 2011.

The process for the servicing of defaulted loans has been improved through further enhancements to innovative workout strategies, including loan modifications use of bespoke analytics and the introduction of a collector toolkit that drives agent decision making.

Repossessions

HML sold 270 repossessed properties in 2011, of which only 5% were sold at property auctions. Of the properties sold at auction, proceeds received versus open market value stood at an average of 87% at auctions, rising to 99% for properties sold privately.

The average time from possession to sale for the whole of 2011 was 149 days, a decrease of 36 days compared to the previous 12 months. From August to December 2011 HML's time from possession to sale decreased to 99 days for all properties and proceeds versus open market value increased to 101.4%. This underlines the improvements made and further supports the upgrade of the special servicer rating.

Risk management

Among the highlights reflected in the agency's rating is HML's risk management framework. Fitch believes the framework demonstrates best practice within the industry.

IT

Fitch also notes that continued investment in IT has resulted in improved applications and system usability. The level of technology used by HML compares favourably to peers. Recently implemented features include screen view for quality control officers when listening to recorded calls - an innovative feature across UK residential mortgage servicers.

Ireland

HML's ability to service Irish assets as a primary servicer benefits from its experience operating in the UK market. The know-how gained at the UK market is transferrable to a high extent and hence results in synergies across the operation.

The existing servicing platform in the UK can be tailored to satisfy the different market and regulatory requirements in Ireland by leveraging operational efficiencies, stable technology and experienced staff.

Portfolio

As of 31 December 2012, HML's portfolio in the UK totalled £42.2 billion and comprised 376,889 loans, an increase of 14.4% and 12.1% by value and number of loans respectively from end-May 2011. RMBS represents 37.7% of the total by value in the UK.

The UK portfolio includes various product types classified by value as prime (18%), sub-prime (42%), buy-to-let (16%), lifetime/reverse mortgages (19%) and other products (5%).

HML's portfolio in Ireland totalled €1.6 billion and comprised 8,375 loans; 28.1% by value of the Irish portfolio is securitised and comprises of 98% sub-prime mortgages.

Chief executive of HML,  Andrew Jones, commented: “Fitch’s decision to upgrade our special servicer rating is an endorsement of the excellent progress being made in that area, while our impressive first Irish rating is further proof of our ability to successfully manage mortgages in Ireland, following our Above Average rating from Standard & Poor’s earlier this year.

“Positive independent validation of our risk framework and our level of technology should give further assurance to our clients that HML offers a market-leading service.”