Fitch assigns special servicer rating to Exact

Fitch Ratings has assigned Charter Court Financial Services Limited, trading as Exact Mortgage Experts, a residential special servicer rating of RSS3.

Exact is owned by a combination of companies owned by the hedge fund Elliott Associates.

The structure consists of Elliott International L.P., Elliott Associates L.P. and the executive team of Exact since November 2008.

Fitch says while Exact has traded profitably since launch, the wider Charter Court Financial Services Group has reported losses each financial year from December 31 2009 to September 30 2011, reflecting investment over that period in Exact and other mortgage-related business lines, including origination.

Fitch notes that growth in servicing revenue, which currently represents 50% of income, in the medium term, will be important for supporting the company’s financial stability in a challenging market environment.

Fitch says the special servicer rating reflects the high level of experience of the executive team and levels of experience of special servicing staff of 11 years that is above UK peers.

Exact operates a mix of workout methods including real estate owned payment arrangements and offering loan modifications. In the past 12 months, Exact acquired fewer than 100 properties through possession, with 85% of possessed properties sold through estate agents and 15% by auction to date.

Average proceeds received versus open market value stood at 104% and 80% for properties sold through estate agents and by auction, respectively. Furthermore, Exact has also made arrangements with experienced and established third-party providers of legal services, asset management operations and debt counselling.

Although Fitch would like to see Exact build on its experience of working out defaulted loans, several key employees have demonstrable experience from previous employers of working on large portfolios requiring complex workout solutions, which helps mitigate this issue.

Fitch notes that training hours for existing staff are above peers and the Fitch benchmark of 40 hours per staff. A structured training and development programme is in place. The ratings are also supported by Exact’s ability to administer a residential mortgage portfolio and its ability to deliver consistent performance of loans in arrears with management strategies in place.

While policies and procedures are well documented, Fitch says internal audit is not as robust as peers, but the company aims to hire experienced industry professionals to help redress the balance over the next 12 months.

Internal audit is currently delivered by a combination of third-party resources and experienced risk and compliance staff.

Risk is further mitigated by the risk management framework in place, including appropriate governance and monthly risk monitoring and testing.

As of October 2011, Exact’s servicing portfolio totalled £444m, comprising nearly 3,150 loans. In addition, Exact is named as standby servicer for a securitised portfolio of almost £1bn.