Servicing When the Devil is in the detail


If the owner of a mortgage book is unregulated and the servicer is regulated where does responsibility for TCF lie?


by Sarah Davidson,


deputy editor, Mortgage Introducer


If I told you to jump off a cliff, would you? No, probably not. Each of us knows that ultimately we’re responsible for our own lives. If we jump and end up paralysed for life, would anyone think it wasn’t our own fault simply because someone else told us to jump? Not likely. Jumping off cliffs and failing to treat customers fairly might not seem common bedfellows but there’s a parallel - particularly when lenders are supposed to be experts in responsibility and fairness. For that matter, soare third party servicers.


In the past nine months, responsibility,


fairness and freedom have been held up to a microscope by the Financial Services Authority and consequentially, intermediary lenders GMAC-RFC and Kensington were both fined for failing to treat customers fairly during the arrears process.


In October last year GMAC-RFC paid a £2.8 million fine after the FSA ruled the lender was charging excessive and unfair fees to borrowers in arrears. In April 2010 Kensington was burnt for a £1.23 million fine for unfair charges to borrowers in arrears.


Both lenders were using the services


of third party servicer Homeloan Management (HML), which signed Service Level Agreements (SLA) agreeing the terms of servicing HML should be administering on loans. HML hasn’t been fined because the FSA deemed the lender responsible, not the subcontractor. This might seem like old news but the


recent furore over BP and the massive damage its burst oil well is doing to the Gulf of America coastline raises the issue again with BP looking to sue the subcontractor that built it.


ReSponSibility So with that in mind where does


responsibility lie in the corporate mortgage world? Can a servicer, which has the face-to-face relationship with a customer and day-to-day understanding of TCF and good practice be absolved of all responsibility if a lender is deemed to be treating customers unfairly just because of a contract?


The FSA identified a number of “serious failings” by Kensington which occurred between 1 January 2007 and 31 October 2008 in relation to its mortgage arrears handling processes and in its dealings with customers in arrears.


They included failure to ensure mortgage servicing staff acting on its behalf had adequate understanding of treating mortgage arrears customers fairly; concentrating on the repayment of mortgage arrears over a short period of time rather than agreeing an arrangement to pay the arrears based on the customer’s individual circumstances; and, applying three charges to customers’ accounts that were unfair and/or excessive.


GMAC-RFC was also fined for inadequate training of mortgage servicing staff in handling of arrears and repossessions among other things. Servicers argue that the lender has a legal responsibility to adhere to TCF guidelines in its practices, and that the SLA absolves the servicer from any accountability if processes are stipulated therein.


30 mortgage introDucer AUGUST 2010


Rumour has it that HML is currently under scrutiny from the FSA and is arguing just this. HML declined to comment to Mortgage Introducer. The exceptions were Crown Mortgage Management, an Ipswich-based servicer for lenders such as Rooftop and German lender Westfalen Bank, and the recently rebranded Capstone, now called Acenden. Capstone was formerly owned by Lehman Brothers, servicing a closed book, but earlier this year launched itself as a standalone company free to take on business from all parts of the mortgage market.


Debby Cattell, head of servicing at


Crown, says contracts and SLAs are “certainly not enough to ensure TCF”. “The FSA is looking for evidence that


TCF is embedded in a company’s culture, from the very top of the organisation,” she says. “Policies and procedures must be designed to ensure that TCF has been considered and these must be regularly reviewed to ensure that they take into account good practice guidelines from the FSA.”


Acenden’s commercial director Martin Frazer believes the relationship between the lender and servicer is fundamentally shifting. “There’s a clear overlap in regulatory responsibility and our view is that the lender servicer relationship should be a partnership,” he says. “We would expect to have significant discussions with our partners about the level of service we’d be offering.” The lender is an expert in TCF; so is the servicer. The servicer is told to jump off the TCF cliff in an SLA, so it does without recourse or advice to the lender that this process is unfair? “Because we strongly believe that as


we are regulated in our own right we are responsible for ensuring that everything


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