HML. Homeloan Management Ltd

Last week I received news from Fitch that our special servicer rating had been upgraded to RSS2-, which is our third upgrade in just two years of assessments. What’s more, it came hot on the heels of an upgrade to’ Above Average’ from Standard & Poor’s.

 

It’s fair to say I’ve had worse weeks. But what do the ratings agency verdicts actually mean for HML and more importantly for current and prospective clients?

 

Here is a quick summary of what the agencies said about us and where it leaves HML in the market.

 

Fitch:

 

Primary servicer rating: RPS2+ (unchanged). HML remains the highest rated primary servicer in the UK.

 

Special servicer rating: RSS2- (upgrade from RSS3+). HML’s third upgrade in two years. Only one servicer rated higher than HML.

 

In upgrading HML’s special servicer rating, Fitch cited the industry experience of HML’s senior management as well as ‘continued improvements to operational performance surrounding the management of defaulted mortgage loans’ as key factors.

 

Fitch also noted HML’s use of ‘innovative workout strategies, including loan modifications and bespoke scorecard analytics, which have aided HML in improving the intensity and focus of collections and recovery performance’.

 

In affirming HML’s primary servicer rating, Fitch acknowledged HML’s 23 years of experience administering UK mortgages and servicing residential mortgage backed securities (RMBS) transactions.

 

Other strengths identified by the international ratings agency include:

 

·         HML’s diversified client base, supported by the provision of over 100 standby contracts for 15 clients worth £27bn

·         HML’s continued support from its parent company Skipton Building Society

·         HML’s robust internal audit and governance plan

 

Standard & Poor’s:

 

Primary servicer rating: Above Average (unchanged)

Special servicer rating: Above Average (upgrade from Average)

 

S&P’s upgrade coincides with the value of mortgages in HML’s special servicing department almost doubling to £4.98bn over the last year.

 

In affirming HML’s primary servicer rating at Above Average, S&P highlighted HML’s ability to seamlessly board mortgage portfolios as a particular area of strength, as well as:

 

·         Increased oversight in audit and risk

·         Additional system enhancements

·         A programme of diversification in its operations, supported by increased marketing activity

 

At the highest level, a positive yet unbiased appraisal of HML is a great endorsement for the company.

 

Independent validation is important in all walks of life and websites like Trip Advisor have become a staple part of booking a holiday because it offers a wealth of independent, unbiased advice on a hotel or destination.

 

Mortgage servicing is no different.

 

I can sit down with anyone and talk for hours about all the good work that goes on at HML, but you might take it with a pinch of salt as I have more than a vested interest in the business. Fitch and S&P have no feelings towards HML either way, they purely report on the facts, which is why these upgrades are so valuable to HML, and should give confidence to our clients that we’re servicing mortgages in a way you would expect from a leading outsourcer.

 

Investors can also take confidence from our ratings. If you buy a mortgage portfolio, you want to know that it will be managed to industry-leading standards so your returns are maximised, and our market-leading (unrivalled in the case of Fitch) primary servicer rating suggests we are able to do that.

 

Special servicing is an area of the business that has made huge strides in recent years and alongside our primary rating, it implies that should the economy take a downwards turn, your losses can be minimised. It delivers cost savings for our clients by identifying for example:

 

·         which borrowers could go into arrears and intervening early 

·         recent arrears cases that will cure naturally so special servicing doesn’t need to be applied

·         arrears cases that will lead to possession

 

The analytics that we use in our predictions have been vital for our upgrades and mean we have the intelligence to prepare bespoke strategies. We have further improvements scheduled too, which should enhance our offering.

 

However, as you might expect, these ratings do not just precipitate a round of back-slapping at HML; they are an opportunity for us to identify the areas we need to improve on to provide a better service for our clients.

 

When you are out in front, you inadvertently make yourself a target to be shot down, and I am determined to make sure that doesn’t happen. Our continuous improvement culture applies to all areas of HML, and while I believe these upgrades are proof that we are making good progress, I’ve been in the industry too long to think we’ve cracked it yet.