possession order on my house

[Guest TaffR]

These definitions are debated widely within the industry and rating agencies acknowledge

that their definitions may differ slightly from servicers themselves, as they break up the

process into definable portions to allow a suitable rating to be applied for each servicing

discipline. Also, having spoken to some servicers, differences in opinions emerged. One

servicer classed special servicing when loans had moved to 1+ days in arrears, while another,

when borrowers were 90+ days in arrears.

These different definitions need to be considered by investors when assessing the rating

and quality of a servicer within a transaction.

[Guest TaffR]

To gain a better understanding of the issues facing the UK mortgage market we spoke

to three third-party servicers to canvass their opinions on current topical issues and

actions that they may take, or have taken, to help borrowers in the current climate.

We thank Homeloan Management Ltd (HML), Specialist Mortgage Services Limited

(Trading as Scarborough Mortgage Services) (SMS), and Capstone Mortgage Services

(Capstone) for their participation. From our discussions, we have segmented their

responses into six general categories highlighted in Figure 1.

[Guest TaffR]

The discussions raised a number of common themes. Each servicer mentioned the

difference between the UK and the US mortgage market, and how the UK market has

been regulated by the FSA since October 2004. This regulation, unlike in the US, is

expected to help the UK withstand the credit turmoil, with limited, or no intervention

from the government.

[Guest TaffR]

The majority of comments related to loan modifications and their impact. All servicers

agreed that loan modifications, as a concept, are not a new phenomenon and have

always been present in some form or another, particularly with balance sheet lenders.

However, a new development in this industry is in securitised transactions where they

have been less prevalent, as the restrictions on the SPV through legal documentation

limit any modifications on loans.

[Guest TaffR]

We discussed a number of other issues that have been very topical in the press recently,

namely, levels of arrears in the UK, how these may be evolving and how the lack of refinancing

ability, as products are withdrawn, is affecting borrowers. Generally, servicers

noted that these two factors have not shown a significant large shift away from the

trend seen prior to August 2007 but minor trends are beginning to emerge as arrears

increase and pre-payments decrease. They expect this to continue.

[Guest TaffR]

Each servicer recognises that interesting times lie ahead and all those surveyed have

taken a variety of steps to help combat the increasing scrutiny likely to emerge, either

by increasing headcount, improving technology, or more frequent communication with

borrowers and lenders.

[Guest TaffR]

Survey comments from three UK servicers

[Guest TaffR]

Loan

modifications…

New or re-market

of the old?

[Guest TaffR]

HML

[Guest TaffR]

Loan modifications are not a new phenomenon and, in particular, building societies have been using them for a long period of time (product switches, rate reductions

and term extensions).

What is new is how loan modifications are being used in securitised transactions.

The issue is that balance sheet lenders have total flexibility (in the UK) to amend loans and while there are obvious benefits to reducing a customer’s payments in the

short term, there are always potential pitfalls that the customer may have increased interest over the long term.

In the UK, the securitised lenders are restricted once the loan belongs to the SPV, with restrictions applied by the legal documentation, rating agencies and trustee, and

so the idea of loan modifications in this area is new.

There are also differences in attitudes and process for lenders that “originate to securitise” and balance sheet lenders.

[Guest TaffR]

SMS

[Guest TaffR]

Certain loan modifications have always been around, for example, capital repayment to interest only and extension of loan terms, but there is now an increased

appetite to use these tools that have always been around.

It also makes a difference who is undertaking the loan modification – i.e. a balance sheet lender or a lender that primarily “originates to securitise” as each has a

different policy.

[Guest TaffR]

Capstone

[Guest TaffR]

Basic loan modifications have always existed, for example capital repayment to interest only, but they are now more defined to gain a mutually beneficial system for

lenders, servicers and borrowers, where loan modifications are carried out by a "minimum losses, maximum returns" policy using a Net Present Value calculation.

For each loan modification, the borrower must represent a full ability to commit to and show an ability to maintain the revised payments, and the loan must be in

arrears and a loss expected on foreclosure.

It is too soon to know how many borrowers will be affected by our loan-modification programme, but there are very few cases (in the 10s) at present.

The potential options available to us for loan modifications include deferral of payments, term extensions, changes in interest rates, amending capital balances,

capitalisation of arrears and short sales – and in all cases, Capstone will make the final decision on what is undertaken, given this authority under the Service Level

Agreements with the lenders.

For each loan modification, the loan is effectively re-underwritten from scratch including a new valuation (drive-by) and full affordability re-assessment.

The process and manner of the loan modifications have been discussed in detail with each of the rating agencies.

[Guest TaffR]

I think you can now start to see the picture...there is so much more....but they have NEVER been able to help you (us)!!!! Only now they are discussing it and no where near (1) a solution or (2) motive to modify contracts to help!!

 

This is a confidential reseacrh report being made available to the public for the first time!

[Guest TaffR]

Is government

intervention

expected, or

required in the UK

as it has been in

the US?

[Guest TaffR]

HML

 

Not inevitable and unlikely as the markets in the UK and US are very different.

More of a “guiding hand” required rather than specific intervention, to ensure that the market moves in the right direction.

[Guest TaffR]

SMS

 

Not at the moment, as the market is inherently changing within the industry, as lenders remove themselves from the market and remove suites of products.

[Guest TaffR]

Capstone

 

The UK market has been regulated since 2004 and is significantly different from the US; therefore, it looks unlikely that further government intervention is required.

Yeh!! Right!!!

[Guest TaffR]

Are you seeing a

noticeable increase

in arrears levels

due to/since the

credit market

turmoil?

[Guest TaffR]

HML

 

There has been a marginal increase between the 1-90 day arrears buckets in the past three months, but not a significant shift.

[Guest TaffR]

SMS

 

A noticeable steady increase

[Guest TaffR]

Capstone

 

In terms of arrears levels, 2007 > 2006 > 2005, and the trend will continue, with nothing specifically different because of the credit crunch.

[Guest TaffR]

Are CPR rates

noticeablely

decreasing as refinance

options

become limited?

[Guest TaffR]

HML

 

CPR rates are slowing down, but there has not been a dramatic shift