"Fitch rates a number of residential primary and special servicers across the UK, and has noted that the increased focus on "Treating Customers Fairly" and other regulatory and government initiatives over the past 12-18 months has led specialist lenders and servicers to amend their arrears and foreclosure strategies," said Robbie Sargent, director, Fitch's European Structured Finance team.
The timeline of a typical UK residential mortgage foreclosure process has extended by three months to 12-15 months compared to 12 months ago. Pre-2008 possession proceedings were typically started after two missed payments, now it is usually after three-to-four months of missed payments. Servicer staff are encouraged and incentivised to make realistic ‘Arrangements to Pay’ and the Council of Mortgage Lenders (CML) recently reduced its forecast for 2009 possessions by 10,000 to 65,000.
It is too early to have re-default rates for modified UK loans, but the high level of re-defaults in the US (up to 70%) shows the difficulty of successfully implementing such schemes. This highlights another problem surrounding the loan modification programme - if the borrower (or servicer) is only delaying the inevitability of possession by agreeing to a loan modification that is unrealistic - in the current declining house price environment, the loss on the sale could be larger and only add to the borrower's long term debt.
"Clearly mortgage defaults will continue to be prevalent during the recession. However, servicers are more geared up than before to tackle rising arrears. A continued investment in staffing and training, along with more emphasis on "Treating Customers Fairly", should help to mitigate increasing possessions," said Sargent.
