Fitch Withdraws Charter Court's UK Primary Ratings of 'RPS2-', Assigns UK Primary Rating of 'RPS2'
The withdrawal follows the update to Fitch's structured finance servicer rating criteria report, in which the distinction between prime and subprime loans for EMEA residential primary servicing activities was removed, as it was no longer considered relevant to the agency's coverage. For further information, see 'Fitch Updates EMEA Servicer Addendum for Rating Structured Finance Servicer' and 'Rating Criteria for Structured Finance Servicers' report, 1 July 2016.
The Primary Rating reflects that although the number of loans under management increased by almost 40% year-on-year at end-2015, call performance statistics and processing times are stable and good compared with peers. Fitch considers that the growth of the servicing portfolio was well managed. The rating also takes into consideration that the majority of new loans were originated by Precise Mortgages and Exact's boarding of only one third-party client portfolio in the past 12 months, which limits Fitch's ability to assess the servicer's ongoing capabilities. Some credit has been given for the boarding of new originations from a new mortgage lender client.
The number of employees increased by 40% year on year; however, the average number of years financial services' experience across the teams remained stable and is good compared with peers. Exact continues to focus on the development of its staff, as demonstrated by a continued increase in the average number of training hours per employee. Annualised staff turnover has decreased and is low compared with peers.
The ratings reflect the robust risk management framework, as seen in larger financial services organisations with higher risk profiles. This is supported by an annual Internal Audit (IA) programme, which is provided through an outsourcing agreement with an experienced third-party supplier. This relationship has matured over the past year and in Fitch's view the IA reports demonstrate thorough methodology and well managed issue resolution processes.
Exact continues to demonstrate good special servicing capabilities, with a variety of forbearance and loss mitigation strategies used effectively. Third-party monitoring procedures are rigorous and possession management performance statistics are good compared to the average across rated peers.
The ratings also take into account Exact's continued technology developments to increase operational efficiency. Exact uses the Phoebus loan accounting system, which is widely used in the UK mortgage market, with a bespoke in-house developed special servicing work-flow system. In Fitch's view the servicing system is flexible and provides a good level of automation. Business continuity and disaster recovery plans are well documented and tested regularly.
Fitch considers the financial condition of Exact as stable, with increasing profits and improving key financial ratios over the three years to December 2015. Historically, the CCFS Group had drawn down on funding made available by Elliott; however, as at 31 December 2015, this debt had been repaid and the Group was funded through a more diverse base, which includes retail deposits, securitisations, warehouse facilities and other financial instruments.
At end-December 2015, Exact's primary servicing portfolio comprised of 25,661 loans (2014:18,596 loans) with an outstanding principal balance of GBP2.9bn (2014: GBP1.7bn). The total special servicing portfolio comprised of 20,498 loans (2014: 12,977 loans) with an outstanding principal balance of GBP2.9bn (2014: GBP1.6bn); this includes 1,238 loans in arrears and 19,281 loans not in arrears but on which Exact is named special servicer.
The rating action commentary is based on information provided to Fitch as of December 2015, unless stated otherwise.
The servicer rating is based on the methodology described in 'Rating Criteria for Structured Finance Servicers' dated 1 July 2016, which includes a comparison of similar UK servicers as part of the review process.