Fitch views positively the steps being taken by Kensington to address the sundry borrower fees and the FSA's concerns in relation to treating customers fairly. (The FSA announced the fine on 12 April 2010.)
The agency also believes the fine imposed by the FSA and the refund to affected borrowers totalling GBP2.3m will have limited impact on Kensington's financial condition. As a result, Fitch will take no immediate rating action with regards to Kensington's UK servicer rating, although the agency will continue to monitor the situation.
Fitch notes that borrower fees, like those addressed in the FSA action, are a problem across the UK mortgage market and numerous lenders and servicers, including Kensington, have been actively reviewing their sundry fee schedules in anticipation of possible regulatory changes.
The fees identified in the FSA action, regarding cancelled and returned direct debits and early repayment changes, were addressed by Kensington in April 2008, January 2009 and October 2009 respectively.
The agency has previously expressed its concerns to rated servicers surrounding the sundry fees charged to borrowers, and thus, is not surprised by the reviews or subsequent actions currently being conducted by the FSA.
Fitch believes that the FSA's action against Kensington, regarding borrower fees assessed between January 2007 and end-October 2008, will likely lead other UK lenders and servicers to continue their re-evaluation of existing fees in the face of other possible actions by the regulator.
However, the agency notes that the fees charged by lenders are designed to cover the increased costs associated with managing arrears. Data provided to Fitch from rated UK servicers shows the average costs to service per loan has increased by over 30% as of 2009 from the costs reported in 2006 and 2007 before the current economic crisis.
Fitch believes that while individual fees may be removed from lenders' fee lists, the expense may likely be incorporated into other existing fees, such as the monthly arrears fee.
The FSA action is unlikely to have any impact on the ratings of RMBS transactions in which Kensington is named as the servicer. Furthermore, borrower fees for arrears tend not to form part of a transaction's available revenue, and are instead distributed directly to the servicer and not through the transaction waterfall to noteholders.
