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