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March 25 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Vertex Mortgage Services Limited’s (VMS) UK Residential Mortgage Primary Servicer Ratings of ‘RPS2-(Prime)’ and ‘RPS2-(Subprime)'.
VMS’s current primary servicing portfolio is growing, driven by the inflow of new mortgages originated for Tesco Bank. VMS made significant investments to its origination platform to accommodate the requirements of its major client Tesco Bank. Fitch believes this will help to attract more origination clients/ new lenders entering the UK market and potentially lead to an increase in primary servicing activities similar to the current portfolio growth.
The affirmation reflects recent changes at the top of the organisation. Following a restructure in 2012 with new joiners at the senior management team more changes have been made with the departure of VMS’s Managing Director after having been with the company for slightly more than two years. The impact of his departure is mitigated with the internal promotion of former CIO to CEO of VMS, who is already familiar with the organisation. In Fitch’s view the organisation could benefit from more stability at the top over the medium-term.
The company has a fairly high amount of IT resources relative to the size of its portfolio and to its UK peers. Fitch believes this is beneficial to the servicing operation. Whereas previously the IT resources were shared with the wider Vertex group they are now directly allocated to VMS’s operations in the UK. This enables stronger control and transparency with regard to cost allocation.
VMS strengthened the governance of its risk management framework with the appointment of a highly experienced individual as Director of internal audit who directly reports into the management board and is fully dedicated to VMS. This is further supported by a strong compliance and risk function and numerous external audits such as the extended scope of an ISAE3402 report and client audits.
VMS’s training and development regime/function remains strong and training activity has further increased in the last 12 months. In line with upcoming Mortgage Market Review (MMR) requirements strong emphasis has been put on industry qualifications. This is demonstrated by a high amount of external qualifications and significant increase in internal advancements compared with the year before.
VMS does not have a credit rating and does not benefit from the support of a rated parent. For the financial year to March 2013 VMS made a small profit following an operational loss in the previous year. VMS benefits from the financial strength of its parent Vertex Group.
Fitch used its global servicer rating criteria to analyse the servicer’s operations and financial condition, including a comparison against similar UK servicers as part of the review process. The analysis is based on information provided to Fitch by VMS and other UK servicers.
As of 31 December 2013 VMS’s portfolio totalled GBP1.5bn and comprised 9,246 loans. This represented an increase, for the first time since 2007, an increase of 15.4% and 9.6% by value and number of loans, respectively, from end-March 2013. RMBS represents 36.5% of the total by value.