Fitch Upgrades City Mortgage Bank's Servicer Rating to 'RPS3+(RU)'
August 25, 2008
Fitch Ratings-London-22 August 2008: Fitch Ratings has today upgraded Russia-based Gorodskoi Ipothechniy (City Mortgage) Bank's (CMB) Residential Primary Servicer rating to 'RPS3+(RU)' from 'RPS3(RU)'. The rating is based on CMB's ability to administer residential mortgage loans and management of early stage arrears of typically less than 60 days past due.
The upgrade reflects CMB's continued investment in their technology platform over the last 12 months, alongside a thorough business contingency and disaster recovery programme. Additionally, the company tenure among management and staff is consistent with CMB's length of time in the market, aided by the staff retention programme that has helped to deliver 0% turnover among the management and operational teams during the last year. Further, senior management industry experience is considered high.
CMB has a robust internal control environment, with regular and in-depth audit reviews taking place; however, Fitch notes the recently appointed internal audit manager is less experienced than the previous manager. Furthermore, given the current audit schedule, the increased review scope mandated by the Central Bank of Russia and the fact the manager is responsible for reviews across the whole bank; Fitch believes additional support and resources may be necessary to maintain the effectiveness of CMB's internal audit programme.
CMB's early arrears management processes are deemed to be proactive, involving verbal and written contact with the borrower within several days of a missed payment, and are consistent with other servicers in the Russian market. While arrears levels have been historically low, Fitch has noted an increase in all arrears categories particularly those loans less than 60 days past due. To address the rising delinquencies, training programmes around customer services and collections have been enhanced and additional staff recruited for the collections and arrears management area.
The company's experience, however, in managing the workout or enforcement process for defaulted loans is extremely limited. Due to a lack of practical special servicing experience, no Residential Special Servicer rating is assigned at this time. Fitch also notes that because of the low levels of arrears in the Russian mortgage market, few servicers have any extensive special servicing experience. CMB is named as the special servicer on its residential mortgage-backed securities (RMBS) transaction, and some comfort is taken from the company's legal department, which is well-versed on the changes to the Russian legal code surrounding mortgage enforcement.
CMB was formed in March 2004 and acquired by Morgan Stanley (rated 'AA-' (AA minus)/'F1+'/Negative Outlook) in 2006. The company's operation is concentrated in Moscow and St. Petersburg with a further 20 offices throughout the Russian Federation. Eight offices or branches were opened in 2007 and a further four are expected to open during 2009 in continued expansion of lending activities across the Russian Federation. While there is some decentralisation of servicing activities mainly related to borrower contact and customer services, all system administration and credit decisions regarding loans are centralised in Moscow.
As of 1 July 2008, CMB's servicing portfolio included six unsecuritised transactions and one RMBS transaction, CityMortgage MBS Finance B.V., consisting of over 8,000 loans with an outstanding principal balance of USD626m (RUB15.27bn).
Fitch rates European residential and commercial mortgage loan primary and special servicers in the UK, Italy, Netherlands, Germany, Spain and Russia on a scale of 1 to 5, with 1 being the highest rating. For more information on the review and rating process for German servicers, see Fitch research on "Rating Criteria for European Residential and Commercial Mortgage Loan Servicers" dated 20 August 2007, and "Rating Criteria for European Mortgage Loan Servicers - Russian Market Addendum" dated 7 September 2007, available on the agency's website at www.fitchratings.com.
Company — City Mortgage Bank
Full nameCity Mortgage Bank