Fitch upgrades HML’s UK special servicer rating

Fitch Ratings has upgraded HML’s UK residential mortgage special servicer rating to ’RSS3+’ from ’RSS3-’ and affirmed its UK residential mortgage primary servicer ratings at RPS2+ for prime and RPS2 for sub-prime.

Fitch says the upgrade of the special servicer rating reflects HML’s improved recovery performance surrounding the management of defaulted mortgage loans, which is evidenced by above average proceeds obtained when selling a property in possession compared to its rated peers.

Furthermore, the arrears performance of loans that have a payment arrangement in place is better than its peers. The continued progress made by HML’s arrears management team regarding loan modification programmes implemented over the past two years was also a driver of the rating upgrade.

The special servicer rating also reflects HML’s increased experience of managing the entire workout process for defaulted mortgage loans.

It says this is bolstered by the experience of the team manager and HML’s experience in providing operational support to its servicing activities. The team has gained practical experience through servicing an unsecuritised portfolio of £1.3bn comprising 10,096 loans since 2008 and a securitised portfolio of £3.2bn comprising 25,513 loans since 2009.

HML’s special servicing team was involved in the sale of over 300 properties in possession up to July 2010. The average proceeds received compared to the market value of the property was 103%, with the average number of days from possession to sale at 162 days.

These performance figures are comparable with higher rated UK special servicers, although the volume of performance data from peers is greater than HML, and this is reflected in the rating. HML appointed its third-party vendors during May and June 2009 and are fully operational.

The primary servicer ratings reflect HML’s long tenure of administering UK residential mortgage loans and servicing residential mortgage-backed securities transactions for 13 years.

They also reflect HML’s diversified client base and continued support from its parent company, Skipton Building Society. In addition, Fitch notes the low turnover among HML’s operational staff and the completion of various IT projects that have generated numerous operational efficiencies have resulted in improved performance throughout the business.

The primary servicing portfolio totaled £45bn and comprised 394,145 loans at end-May 2010, with RMBS representing 41.5% of the total by value. The UK portfolio includes various product types classified by value as prime 9%, sub-prime 40%, buy-to-let 22%, lifetime/reverse mortgages 16% and other products 13%.