Rankings Affirmed On Computershare Loan Services (HML) As A Primary And Special Servicer In The U.K. And Ireland

Stocks and Financial Services Press Releases Friday August 11, 2017 17:34
LONDON--11 Aug--S&P Global Ratings

LONDON (S&P Global Ratings) Aug. 11, 2017--S&P Global Ratings has affirmed its overall ABOVE AVERAGE rankings on Skipton-headquartered (in Yorkshire) Computershare Loan Services, formerly HML, as a primary and special servicer of residential mortgages in the U.K. and as a primary servicer of residential mortgages in Ireland. The outlook is positive for the rankings in the U.K. At the same time, we have revised to stable from positive the outlook on the ranking on Computershare Loan Services (HML) in Ireland.

Computershare Loan Services (HML) provides outsourced mortgage servicing--including underwriting support--to a range of banks, building societies, non-bank lenders, securitization vehicles, and investment companies in the U.K., and Irish mortgage markets. Since 2014, the Computershare Loan Services (former HML) 's operations have been part of the Computershare Ltd. group, a global financial services company listed in Australia and present in more than 20 jurisdictions.

In 2016, Computershare expanded further into the mortgage servicing sector in the U.S. and in the U.K. In June last year, the group won the mandate to manage approximately £30 billion on behalf of UK Asset Resolution Ltd. (UKAR), absorbing 1,700 former UKAR staff. In October 2016, Computershare's worldwide servicing subsidiaries joined the newly established Computershare Loan Services division and adopted its trading name. As a result, the group initiated the integration of former HML and former UKAR operations, with both entities now sharing the same executive team, supporting functions, and business goals.

Computershare Loan Services is now the U.K.'s leading third-party mortgage administration (TPMA), managing almost £62 billion in the U.K. as of the end of 2016. Our rankings in the U.K. are limited to its Skipton-headquartered operations (former HML) and its ability to manage former HML assets, accounting for £26.7 billion, down from £27.8 billion reported as of the end of 2015. Computershare Loan Services manages almost 52% of outsourced U.K. residential mortgages, while former HML assets only represented 23% of this market in 2016 (versus 38% in 2015). In Ireland, Computershare Loan Services' business, composed of the former HML portfolio, decreased to €1.9 billion, down from €2.7 billion over the same period, including €0.6 billion of performing loans. HML did not finalize the application to obtain the servicing license required in this region since 2015 and one out of four clients without a license had to transfer the business to regulated entities.

Our rankings reflect our assessment of the company's operations based on our criteria (see "Related Criteria").
The servicer is part of a group leading the U.K. servicing market and the group is committed to invest in its servicing offering.

While the U.K. portfolio associated to Computershare Loan Services' (former HML) mortgage servicing operations has amortized further since our last review, the servicer signed several new mandates under the its trading brand and has a busy pipeline in place in the U.K. There is an expectation that this will generate sufficient business to counterbalance the natural amortization of the portfolio and guarantee positive growth in the future. Computershare Loan Services, in our view, is now less able to retain and attract new business in Ireland where the company has a lower competitive advantage compared to licensed peers.

The integration of the former HML and UKAR operations, which started in late 2016 and will be finalized in 2018, has been well-controlled in our view and has been delivered as planned so far.

Computer Loan Services' leadership team comprises several former HML executives--including the Computer Loan Services' CEO, the head of integration, and the chief strategy officer--which guarantees management continuity. The new Computershare Loan Services division adopted a functional structure which is more scalable and better aligned to the current business perspective, in our opinion, and is moving away from the former HML's geographic specialization.

Supporting functions such as IT and HR merged at the division level. The next steps will focus on the harmonization of processes and procedures, and the implementation of a unique IT solution with the transfer of UKAR's assets into the servicing system used by Computershare Loan Services (former HML).

As a result, the group will properly leverage economies of scale and scope, in our view.

While Computershare Loan Services applies a three line of defense model--as HML did as a stand-alone business--the audit function operates at the Computershare level, while risk and compliance operate at the Computer Loan Services' level. We think this reinforces the independence and efficacy of the internal control system. Finally, Computer Loan Services (former HML) continues to apply the same operative model and has maintained servicing standards while implementing the necessary changes required after the acquisition and during the current integration, demonstrating the robustness and resilience of its operations.

OUTLOOK The outlook remains positive for primary and special servicing in the U.K. This reflects that Computershare's acquisition has proven beneficial, as anticipated at the time of our last review, however, the integration with the former UKAR platform only started less than a year ago.

While Computer Loan Services is managing to minimize the associated risks and will benefit from the integration, changes should consolidate further. In our opinion, this could occur before our usual surveillance cycle so we could review the rankings before 12 months.

We have revised to stable from positive our outlook on the primary servicer ranking for residential mortgages in Ireland to reflect the current prospects of future growth in this region.

Despite the Irish operations sharing the same organization, management team, and supporting functions with the U.K. operations, the company does not expect to test them over a bigger portfolio. MANAGEMENT AND ORGANIZATION We have affirmed our ABOVE AVERAGE subrankings on Skipton-headquartered Computershare Loan Services, formerly HML, for management and organization as a primary and special residential loan servicer in the U.K. and as a primary residential loan servicer in Ireland.

Overall, the changes following the Computershare takeover and integration with the former UKAR platform have been positive, in our view. As part of the newly established Computershare Loan Services division, the operations headquartered in Skipton have a relevant business proposition which the market seems to positively value.

Consequently, the firm attracted new business that will counterbalance the natural amortization of the portfolio going ahead and we understand that the pipeline of new business is encouraging in the U.K. The leadership team is solid with extensive experience and the new structure is more appropriate to support planned growth. Supporting and internal control functions are well-sized, organized, and merged at the Computershare Loan Services level with the exception of audit operating directly at the group level.

Despite not having yet worked for one full year under these new arrangements, we are confident that these functions are going to provide better support to the wider Computershare Loan Services' operations. LOAN ADMINISTRATION We have affirmed our ABOVE AVERAGE subrankings on Computer Loan Services (former HML) for loan administration as a primary and special residential loan servicer in the U.K. and as a primary servicer of residential mortgages in Ireland. Those operations apply policies and procedures carefully reviewed as a result of the Computershare acquisition and the ongoing integration.

The IT platform supporting the operations headquartered in Skipton will support the wider Computershare Loan Services business, confirming the validity of this solution and the future commitment linked to this decision to maintain systems up to date.

In our opinion, HML's vast experience in mortgage administration, its established loan servicing systems, and loan boarding capabilities will underpin Computer Loan Services' position as the U.K.'s leading TPMA and enable it to expand further within this new business.

FINANCIAL POSITION We consider Computer Loan Services' (former HML) financial position to be SUFFICIENT based on Computershare Loan Services' (former HML) and Computershare's audited financial statements for 2014, 2015, 2016, and the latestprojections.

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