December 2014

HML has received three ratings upgrades from Fitch

Ireland has experienced the fastest growing house prices in

the world, at 15% in the year to September

S&P has raised the long-term sovereign credit rating of Ireland

from A- to A

HML News

HML has received three

ratings upgrades from Fitch

in its latest round of

evaluation.

Ireland Ratings

HML received two ratings upgrades for

Ireland. Both its Ireland Primary (Prime)

Servicer Rating and its Ireland Primary (Sub-

prime) Servicer Ratings have been upgraded

to RPS2+ from RPS2. These two ratings are

the highest of any servicer in Ireland.

Fitch also assigned HML a new Ireland

Special Servicer Rating assigned at RSS2.

UK Ratings

HML also has had its UK Special Servicer

Rating upgraded from RSS2 to RSS2+. This

means it now has the joint highest Special

Servicer Rating in the UK.

Fitch also affirmed HML’s UK Primary (Prime)

Servicing Rating and its UK Primary (Sub-

prime) Servicer Rating both at RPS1-. HML’s

RPS1- Primary (Prime) servicer rating remains

the highest of any third-party mortgage

administration company in the UK and Ireland.

Its RPS1- Primary (Sub-prime) rating remains

the highest in Europe.

Pole Position

Andrew Jones, chief executive

officer of HML, said: “I am delighted that

HML has received three ratings upgrades from

Fitch, as well as being assigned a new Ireland

Special Servicer Rating and being affirmed for

two more UK ratings.

“The Fitch press release noted HML’s

excellent risk management framework,

commitment to staff development and strong

technology platform.

“In addition, the rating agency said that our UK

Special Servicer Rating was upgraded as a

result of our strong infrastructure, in particular

our proactive management of impaired and

high-risk loans.

“This is testament to our use of advanced

analytics to help shape and deliver our clients’

arrears and debt management strategies, for

which we have won industry awards.

“We believe HML has achieved a milestone in

that, to the best of our knowledge, no other

mortgage administration company has ever

been given a new Ireland Special Servicing

Rating at the RSS2 or above level. This,

combined with S&P recently assigning us a new

Irish Special Servicing Ranking at Above

Average, places us in pole position to build

upon our standing in the market as the UK and

Ireland’s leading third-party mortgage

administration company.”

The Fitch press release also noted that HML’s

new parent, Computershare, will provide

infrastructure and operational support. The

Financial Conduct Authority approved the

purchase of HML by global financial services

company Computershare in November and the

acquisition was been completed on November

17th.

HML News

Mortgage portfolio asset

trading in Ireland: getting it

right. Paul Fryers, commercial

director at HML, outlines in

Finance Dublin some of the

considerations that investors

need to take into account to

benefit from the robust asset

trading environment that

Ireland is currently

experiencing.

Is the mortgage market witnessing the first green

shoots of recovery? The background music is

definitely positive. The recent Budget was the first

one in seven years not to include new austerity

measures. Fitch recently reported that early-stage

mortgage arrears have dropped below 2% for the

first time in three-and-a-half years.

Unemployment is also coming down, with the rate

for September standing at 11.1%. In the same

month in 2013, this figure was a much higher

12.6%. With Ireland’s leading banks also

returning profits in their latest financial results,

sentiment is certainly improving.

One area that this is evident is within the asset

trading solutions market. A recent report by PwC

noted that over €27 billion of asset trading has

already taken place during 2014, with many of the

asset purchasers coming to the fore from the US,

such as CarVal, Lone Star and Apollo. They have

undertaken deals quickly, reflecting the robust

appetite within the market.

Private equity firms are fast entering the traditional

lender market; the Investec sale of Start to Lone

Star and the sale of Springboard to Mars Capital

are two significant transactions that have taken

place recently.

However, successful asset trading is not just about

finding the right portfolio at the right price. There

are many complex components to asset trading

that play a central role if investors are to enjoy true

value from the asset trade. So what are the three

key steps which need to be taken?

1. Analysing a portfolio

A portfolio needs to be analysed for risk, as well

as forecasting its performance, arrears levels and

cash-flows. This is where advanced analytics are

essential for creating a solid foundation for the

subsequent steps.

2. Servicing review, including due diligence

As well as analysing the portfolio, a servicing

review can also help investors make the right

strategic decisions. A loan-level risk assessment

of a portfolio, tailored to an investor’s

requirements, can further bolster deal confidence.

3. Portfolio modelling

Portfolio modelling is another important step in the

process of asset trading, with advanced analytics

once again playing a key role. Using a partner that

can develop statistical models enables investors to

predict mortgage redemption, future losses and

the profitability of accounts.

Portfolio valuation and pricing

Once these steps have been taken, investors

are in a strong position to have their portfolio

valued and priced. Indeed, as well as an

increasing number of asset purchasers looking to

acquire mortgage portfolios, there are also sellers

who believe now is the right time to dispose of

their assets as a result of the more attractive sale

prices.

Continued over the page

HML News

This has been quite evident in Ireland, which has

led the way in Europe for asset trading.

Indeed, at the International Corporate

Restructuring Summit in Dublin in September,

Fabrizio Grena, executive director of European

Special Situations Group at Goldman Sachs said

30% of asset trading activity in Europe has taken

place in Ireland since the economic collapse.

What next after onboarding?

We have seen that the asset traders involved with

recent deals in Ireland have committed

themselves to the Code of Conduct on Mortgage

Arrears (CCMA), so it’s essential that the

mortgage servicing partner they choose places

appropriate customer outcomes at the heart of

everything they do. A partner should have a

thorough understanding of the difficulties that

some borrowers in Ireland face and be highly

experienced at managing borrowers in arrears,

drawing upon comprehensive knowledge of the

CCMA, Mortgage Arrears Resolution Process and

Standard Financial Statements.

When the Department of Finance in Ireland

releases the results of its consultation into the

sale of loan books, it will be clear as to where

borrowers, the market and the wider industry

stand on the matter.

There is certainly plenty for investors to consider

when searching for the right mortgage portfolio

deal in Ireland, from ensuring appropriate

outcomes for consumers and reducing arrears

levels, to finding a profitable portfolio and

migrating the assets. Partnering with a proven

third-party asset trading solutions provider can

help investors quickly overcome these hurdles in

order to enjoy a successful and profitable deal.

HML has launched a new

good practice guide for

lenders with interest-only

mortgage portfolios in Ireland.

The Central Bank of Ireland (CBI) published its

new research on interest-only mortgages in

Ireland in July 2014, which detailed several main

findings and highlighted potential risks for

borrowers who have this type of mortgage.

Early borrower engagement is key to increasing

the available and sustainable repayment options

for borrowers, allowing them to remain in their

home at the end of their mortgage term.

This step-by-step good practice guide details

what lenders should be doing to deliver their

interest-only borrower engagement strategies.

HML Ireland Update

Date reflects what the statistic was during that period, rather than when the statistic was published

* Since revised downwards to 10.9%

Consumer Price Index (Central

Statistics Office)

NOV ‘14

0.1%

OCT ‘14

0.2%

SEP ‘14

0.3%

European Central Bank (ECB)

Base Rate

DEC ‘14

0.05%

NOV ‘14

0.05%

OCT ‘14

0.05%

Unemployment Rate (Central

Statistics Office)

NOV ‘14

10.7%

OCT ‘14

11%*

SEP ‘14

11.1%

Average National House Prices

(Myhome.ie)

Q3 ‘14

Up 1.4% from Q2

€193,000

Q2 ‘14

Up 1.3% from Q1

€190,216

Q1 ’14

Down 0.7% from Q4

€187,736

Arrears

(Central Bank of Ireland - CBI)

PDH – total

PDH – 90 days+

BTL – total

BTL – 90 days+

Q3 ’14

117,889

84,955

38,463

31,619

Q2 ’14

126,005

90,343

39.669

31,749

Q1 ’14

132,217

93,106

39,361

31,048

Home Repossessions (CBI)

PDH

BTL

Q3 ‘14

1,393

634

Q2 ‘14

1,110

611

Q1 ‘14

1,116

568

Industry Statistics

Consumer Price Index

The CPI in November was 0.1% higher than

the same month in 2013, down 0.1% on

October. Notable upward pressures came

from the education (5%), alcoholic beverages

and tobacco (3.7%) and miscellaneous goods

and services (4%) sectors.

This was partially offset by declines in clothing

and footwear (-3.2%) and food and non-

alcoholic beverages (-2.6%).

ECB Interest Rate

The ECB base rate remained at 0.05% in

November. Mario Draghi, president of

the ECB, said: “Real GDP in the euro area

rose by 0.2%, quarter on quarter, in the third

quarter of this year. This was in line with

earlier indications of a weakening in the euro

area’s growth momentum, leading to a

downward revision of the outlook for euro area

real GDP growth in the most recent forecasts.

The latest data and survey evidence up to

November confirm this picture of a weaker

growth profile in the period ahead.”

Unemployment Rate

The unemployment rate stood at 10.7% in

November 2014, down from 12.2% in the

same month in 2013. There were 352,647

unemployed individuals in November, an

annual fall of almost 38,860 people.

House Prices

The national average house price in Ireland

stood at €193,000 in Q3 2014, a 1.4%

increase on the previous quarter, according to

Myhome.ie’s analysis of asking prices.

On an annual basis, the asking price rose by

1.1%, which is the first positive year-on-year

growth in seven years.

According to the Central Statistics Office,

national residential property prices climbed by

16.2% in the year to November. This is slightly

down from the 16.3% rise in October.

Arrears

Principal Dwelling Houses (PDH)

The number of PDH mortgage accounts in

arrears declined by 6.4% between Q2 2014 and

Q3 2014. Out of the total mortgage accounts,

15.5% were in arrears, representing 117,889.

The number of PDH mortgage accounts in over

90 days of arrears also declined during Q3,

falling by 6%. These accounts totalled 84,955,

11.2% of all the PDH mortgages in arrears.

Accounts in arrears of more than 720 days

increased in number by 418 during Q3 and

currently account for almost 7.6% of total PDH

mortgage accounts. The outstanding balance of

such accounts was just over €8 billion at the

end of September.

Buy-to-let (BTL)

The number of BTL mortgage accounts in

arrears decreased between Q2 and Q3 2014 to

38,463 (26.8% of the total accounts) from

39,669 (27.5% of the total accounts).

Home Repossessions

At the end of Q3 2014, there were 1,393 PDHs

and 634 BTLs in lenders’ possession. Of the

PDHs, 302 were taken into possession during

the quarter, 47 of which were the result of a

court order, while 255 were abandoned or

voluntarily surrendered.

Top News Stories

Unregulated entities that

have purchased mortgages

must be a priority for Fianna

Fáil in 2015.

The party’s finance spokesperson Michael

McGrath said the Department of Finance

estimates that more than 10,000 mortgages

have been purchased by unregulated entities.

He added that “mortgage holders are left in a

no man's land scenario relying on the goodwill

of unregulated firms who are accountable to

no Irish authorities”.

Recent transactions include the sale of

Springboard Mortgages to Mars Capital, which

said it will adhere to the Code of Conduct on

Mortgage Arrears.

He also voiced concerns following the news in

September that Investec had sold Start.

At the time, Mr McGrath said: “The

government initially promised legislation to

deal with the issue in 2015 but subsequently

agreed to bring it forward earlier. Now that the

Department of Finance's public consultation

on the issue has been concluded, the

legislation needs to be accelerated.”

The sale of Start has

completed.

Lone Star purchased Start from Investec in

full, with Investec deciding to sell the £540

million (€692 million) Irish mortgage book in

order to simplify its banking model.

S&P has raised the long-

term sovereign credit rating

of Ireland from A- to A.

The rating agency also placed a stable outlook

on the rating, as well as on Ireland’s short-term

debt rating. It upgraded this latter rating from A-

2 to A-1.

S&P raised its forecast for Ireland’s average

expansion between 2014-2016 from 2.7% to

3.7%.

The rating agency commented: “The

upgrade reflects our view of Ireland’s solid

economic growth prospects, which we expect to

underpin further improvements in the

government’s budgetary position.”

It also said that banks in the country have made

important progress in balance sheet

consolidation and repair, which should

eventually result in banks being less dependent

on the sovereign.

This follows the news last month that, according

to the European Commission’s 2014 Autumn

Forecast, Ireland is expected to experience the

fastest growth in the EU in 2014.

Its real GDP growth forecast for the country

stands at 4.6%, with the EU figure placed at

1.3%.

The forecast noted: “Ireland is decoupling from

the euro area, as its recovery broadens and

gathers firm momentum. This robust and faster-

than-expected expansion should bolster

government revenues and facilitate a reduction

of the deficit.”

Top News Stories

Ireland has experienced the

fastest growing house prices

in the world. This is according to a new survey by Knight

Frank, which assessed Q3 2014. The results

show that despite Ireland remaining at the

bottom of the price growth table between 2009

and 2012, property values rose by 15% in the

year to September.

In second place lies Turkey (14%), followed by

Dubai and the United Arab Emirates (12.5%)

and the UK (10.5%).

Despite topping the table, house prices in

Ireland are still almost 40% below their peak in

2007.

The Irish Independent reported Liam

Bailey, global head of research at

Knight Frank, as commenting: “I wouldn’t be too concerned for Ireland just yet

given that it has rebounded and is making

ground after one of the worst property crashes.

“There is an obvious return to confidence in

the Irish economy overall and interest rates

remain low. However, these sort of increases

are unsustainable in the long run and it is likely

that Ireland’s market will show some cooling

going forward.”

Permanent TSB has

reportedly been given the

go-ahead for its plan to plug

its shortfall. During the European bank stress tests in

October, it was found that the lender had a

€855 million capital shortfall. However, the

Irish Times reported that Permanent TSB’s

plan to plug this gap has been given the green

light by the Single Supervisory Mechanism.

Details of the plan have not been revealed, but

the newspaper stated that a spokesperson for

the lender has “welcomed” the endorsement by

the SSM. The capital shortfall needs to be

covered by the end of July.

Permanent TSB is over 99% owned by the

state.

Households continue to pay

down their debt.

The Central Bank of Ireland has released its

latest Money and Banking Statistics, which

noted that for November, household loan

repayments surpassed drawdowns by €335

million.

Repayments for house purchase loans

exceeded drawdowns by €2.2 billion for the

year-to-date. The figure for non-housing loans

stood at €1.6 billion.

The CBI also noted that lending to households

in Ireland decreased on an annual basis, falling

by 3.8% last month.

Bank of Ireland has acquired

a portfolio of performing

residential mortgages. The lender has purchased the portfolio from the

special liquidators to Irish Bank Resolution

Corporation, with a consideration of €253

million payable in cash upon completion.

Gavin Kelly, director of Bank of

Ireland consumer banking, said: “We

are pleased to announce this transaction which

is a positive development for our business and

look forward to welcoming a new group of

customers to Bank of Ireland.”