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Announcement:

Moody's updates on Kensington Mortgage Company Ltd as special servicer of 11 UK Non-Conforming RMBS deals rated by Moody's

17 May 2010

Special Servicer for seven Residential Mortgage Securities transactions, three Money Partner Securities plc transactions and Kensington Mortgage Securities plc

London, 17 May 2010 -- Moody's Investors Service said today that Kensington Mortgage Company 's (Kensington, not rated) servicer infrastructure has been maintained since Moody's previous visit in 2008, despite a higher dynamic delinquency rate compared to its peers.

As part of Moody's surveillance process of residential mortgage-backed securities (RMBS) transactions, it regularly meets with servicers to monitor their quality and discuss any changes to the servicing infrastructure since Moody's previous visit. On 22 March, Moody's met with Kensington Mortgage Company Ltd., which is the special servicer for 11 Moody's-rated outstanding RMBS transactions:

- Seven Residential Mortgage Securities (RMS) transactions (RMS 16 plc through RMS 22 plc)

- Three Money Partners Securities (MPS) transactions (MPS 2, 3 and 4 plc)

- Kensington Mortgage Securities plc Series 2007-1 (KMS).

As of February 2010, the total outstanding balance of these 11 transactions was GBP2.4 billion.

As special servicer for these transactions, Kensington's responsibilities include: (i) overseeing the day-to-day operations of Homeloan Management Ltd (HML, SQ2+), which is acting as the loan administrator for these transactions; (ii) determining the servicer's strategy; (iii) making decisions on cases that are outside HML's mandates; and (iv) managing the repossession and sale process of the real estate property, which includes overseeing the third parties involved in these processes (e.g. solicitors, asset management).

MOODY'S UPDATED OPINION ON KENSINGTON'S SERVICING OPERATION

Since Moody's prior review, Kensington has continued to invest in its servicing operations to strengthen its infrastructure and controls. Moody's continues to view positively Kensington's behavioural score and data mining infrastructure, which drives its call collection campaigns. In Moody's opinion, this further assists the servicer in developing collection strategies, which ultimately aim at maximising recovery.

From Moody's review, it appears that the opening hours of Kensington's call centre (operated by HML) are slightly longer than its peers and that it starts calling its borrowers (i.e. after a failed direct debit) in some circumstances slightly later than some of its peers (within 4 days vs. 48 hours). Moody's views positively the use of extended opening hours as it increases the likelihood of reaching a borrower.

Kensington currently does not use updated credit bureau information when assessing a borrower's financial condition in order to offer an arrangement-to-pay (ATP) or a loan modification. Moody's would welcome the use of credit bureau data as it validates a borrower's indebtedness and provides additional comfort that the proposed repayment plan (e.g. ATP or loan modification) may be sustainable.

Moody's observes that the number of months that a borrower is delinquent at repossession has continuously increased between November 2008 and the beginning of 2010 (2009 average: 14 months). Moody's considers that this increase is mainly attributable to the forbearance tools introduced by Kensington in response to the changing economic climate and regulatory environment and the various initiatives implemented by the government since the start of the financial crisis to ensure that all the solutions have been considered before beginning the foreclosure process.

Although Kensington seems to take longer to sell a repossessed property than some of its peers (Moody's calculated UK non-conforming 2009 average: 170 days), it seems to achieve a slightly higher sale price as a percentage of the asking price in comparison to Moody's calculated UK non-conforming 2009 market average of 92%.

Moody's views positively the standardisation and automation of management information from Kensington's third parties, as it ensures that information is comparable and has also enhanced the overall monitoring and control framework. The work has been completed for its asset managers and is under way for its solicitors.

Moody's also views positively the very low turnover rate and the experience of the staff (which we have estimated to be on average more than five years). Moody's further notes that the ratio of loans per collector in the direct special servicing team is slightly higher than some of its peers. However, Kensington plans to increase the number of staff within this department.

Finally, Moody's considers that the fine imposed by the Financial Services Authority (FSA) on 12 April 2010 has no impact on its analysis as it appears that most of the FSA's concerns have now been addressed.

SECURITISED PORTFOLIO PERFORMANCE

As of February 2010, the 90+ delinquency rate as a percentage of the current balance was 31.15%, 32.69% and 29.27% for RMS, MPS and KMS, respectively, which is 62%, 70% and 52% higher than the UK non-conforming index (19.22%). Cumulative losses as a percentage of the original pool balance were 1.86% (RMS), 3.31% (MPS) and 2.95% (KMS), which is 22%, 118% and 94% higher than the UK non-conforming index (1.52%).

KENSINGTON SERVICING INFRASTRUCTURE - UPDATE

Kensington's special servicing infrastructure has changed significantly since Moody's prior review in February 2008. During this period, the department has grown from nine to 43 staff, mainly as a result of the establishment of the direct special servicing team. A new head of department and two direct reports were externally recruited to support the growth. The vast majority of the staff have prior work experience in financial services gained as a collector, underwriter, mortgage sale or field agent.

The department currently comprises two sub-departments: the special servicing team and the possessions and asset managers team. The special servicing activities include all the activities which are linked to the loan administrator (e.g. defining servicing and collection strategy, monitoring servicer level agreement and taking decision on cases which fell outside their mandate) and the direct special servicing activities (i.e. Kensington takes over the special servicing of cases of key segments of its portfolio where more intense customer focus is required, including cases prior to the commencement of possession proceedings, customers with more than one facility, sensitive cases and complaints).

In addition to handling the repossession and sale processes, the possessions and asset managers team has a customer liaison team performing face-to-face visits at the borrower's home. In common with most UK servicers, the litigations, repossession and sale activities are outsourced to third parties, with the servicer making the key decisions (e.g. setting the asking price). Since Moody's prior review, Kensington has strengthened its control infrastructure in regards to its third-party panels.

Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck. For further information, please visit our website directly or contact Moody's Client Service Desk (+44 20) 7772 5454. Additional information on the referenced Moody's rated RMBS transactions, including the latest Performance Overview, is available at www.moodys.com

Paris
Annick Poulain
Managing Director
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Carine Kumps-Feniou
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's updates on Kensington Mortgage Company Ltd as special servicer of 11 UK Non-Conforming RMBS deals rated by Moody's
No Related Data.
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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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