OREANDA-NEWS. Changes in ownership of UK residential mortgage servicers can create uncertainties about post-acquisition strategy and operations, and the effect on servicers' stability and performance, Fitch Ratings says. The financial and operational support and strategic direction provided by new owners are key to the ratings impact of unprecedented numbers of acquisitions in the sector.

The potential for servicer sales to create uncertainty is reflected in our most recent rating action in the sector. We placed Acenden's servicer ratings on Rating Watch Evolving (RWE) on 13 February, following its sale (subject to regulatory approval) to private equity firms Blackstone and TPG. We placed Kensington Mortgage Company's (KM) servicer ratings on RWE last year, following acquisition by the same parties. There is potential synergy between KM and Acenden and we will monitor whether any operational changes result from them having a shared parent.

The RWEs could result in upgrades, affirmations or downgrades. Our assessments will take into account the new owners' longer-term financial commitment and the impact of the change of ownership on business performance, technology infrastructure and loan performance. It is unclear whether private equity-owned servicers will continue to seek third-party mandates or focus on servicing portfolios originated or acquired by their new owners, as has typically been the case in the past.

All servicers may find increasing their third-party business challenging. The UK is Europe's most competitive market and Homeloan Management Limited (the UK's largest third-party residential mortgage servicer by AUM) and Pepper (UK) (formerly Oakwood Global Finance) have consolidated their dominant positions. It is not clear that anticipated growth from new lenders, outsourcing, and non-conforming lending will materialise. Recent entrants to the lending market have kept servicing in house and concerns about the operational risks of servicer transfer have led to few securitised portfolios changing hands.

If opportunities do not materialise, the financial and operational support new owners provide could reduce. This could be negative for servicer ratings.

But the various acquisitions of UK residential servicers in 2014-2015 have not caused any negative changes to Fitch's ratings on the affected servicers (or transactions serviced) to date. Ownership changes can be positive where new owners have the ability and the intention to help the business develop.

For example, in December we affirmed HML's UK primary servicer rating, and upgraded its special servicer rating a month after its acquisition by Computershare, an international data management and transaction processing business. In the US, Specialized Loan Servicing, LLC has performed well since 2011 under Computershare's ownership, improving control systems and technology, and achieving managed expansion of its servicing portfolio. This supports our view that Computershare will provide appropriate operational and infrastructure support to HML.

Similarly, we think Pepper Group, which bought and rebranded Oakwood last year, will support the servicer's financial and market positions. Pepper Group specialises in originating and servicing consumer finance assets and the two companies have significant shared history. We affirmed Pepper (UK)'s residential mortgage servicer ratings following the acquisition.

Capita Asset Services' status as a major outsourcing provider suggests it will try to address the failure to keep pace with industry-wide technology improvements at Crown Mortgage Management (now Capita Mortgages Services Ltd), Fitch's lowest-rated UK residential mortgage servicer, following its acquisition last year.