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Fitch affirms Vertex’s UK servicer ratings

Fitch Ratings has affirmed Vertex Mortgage Service’s UK residential mortgage primary servicer ratings at ’RPS2-prime’ and ’RPS2-sub-prime’.

Fitch says the ratings are based on VMS’s ability to administer a diversified residential mortgage portfolio and its sustained ability to deliver further IT developments for the origination and servicing platforms it offers.

Furthermore, VMS continues to provide comprehensive training programmes to its team.

The ratings agency says the firm has also improved its inbound call process, which aims to deliver a good customer experience to all borrowers, thereby reducing complaints, further supports the rating and VMS’s approach to treating customers fairly.

Over the past year, VMS has improved its regulatory training, and has sought external training from companies used to assist both the CML and FSA for arrears handling and the government-approved assistance schemes.

While average training hours per employee per year are just below the 40 hours Fitch benchmark and other UK rated servicers, the experience and company tenure of the operational staff, above VMS’s rated peers, help offset Fitch’s concerns about the lower training hours.

VMS’s clients are not originating at the levels seen prior to the credit crunch, and some relationships have been terminated, resulting in a significant drop in VMS’s servicing portfolio.

The company is actively pursing new servicing mandates, which Fitch believes may prove challenging given the current economic environment. To enhance its service offering, VMS is expanding its special servicing operations, which may attract new business, particularly from parties looking to buy whole loan portfolios including performing and non-performing loans.

VMS recently signed a contract with Tesco to provide origination and mortgage administration services once Tesco begins lending in mid-2011. Fitch believes this will help combat the decreasing assets under management, and that the impact of the Tesco relationship could be substantial depending on origination volumes.

A review of VMS’s accounts by the Fitch Financial Institutions Group in Q409 confirmed that business continues to be profitable and operating with a positive cash balance.

The recently signed contract with Tesco and improved cost control will continue to support profitability. However, Fitch notes that anticipated growth in the medium term will be key for supporting financial stability in a challenging market environment.

FIG also noted that VMS is currently operating in a less than favourable economic environment, and while its share capital is modest it has significant retained earnings and capital adequacy for regulatory requirements. VMS is ultimately owned by private equity investors and the group is funded utilising preference shares with low group leverage, within normal corporate banking terms.

Fitch used its global and UK servicer rating criteria to analyse the servicer’s operations and financial condition, including a comparison against similar UK servicers as part of the review process.

VMS had total AUM of £2.79bn including 20,529 mortgage loans at end-July 2010, comprising sub-prime – 64%, buy-to-let – 32% and right-to-buy – 4% mortgages by AUM.

This is a 46% decline from the peak of £5.2bn at the start of 2008, primarily due to the withdrawal of VMS clients from UK mortgage origination. VMS administers securitised loans totalling1.84bn, down on previous years due to the loss of a servicing contract for a portfolio of sub-prime loans.


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