Fitch Affirms City Mortgage Bank's Russian Servicer Rating
December 24, 2010 Fitch Ratings
Fitch Ratings-London-24 December 2010: Fitch Ratings has affirmed Russia-based Gorodskoi Ipothechniy (City Mortgage) Bank's (CMB) Residential Primary Servicer rating at 'RPS3+'. The rating is based on CMB's continued ability to administer residential mortgage loans and management of early stage arrears of typically less than 60 days past due.
The servicer ratings reflect CMB's tenure of over six years of administering Russian residential mortgage loans, together with CMB's early arrears management process. The process involves verbal and written contact with the borrower within several days of a missed payment, and is consistent with other servicers in the Russian market. Although arrears levels have been historically low over the past four years for CMB, Fitch has noted a significant increase in all arrears categories. In 2010, 80.1% of the portfolio is current compared to 88.8% in 2009. Loans more than 180 days past due within the portfolio have increased to 10.5% from 3.3%.
In July 2010, the sale of CMB by Morgan Stanley to Orient Express Bank (OEB; unrated) was announced and was completed in October. While Fitch does not publically rate OEB, a financial review was undertaken by Fitch's Financial Institutions Group in Moscow, the results of which are reflected in Fitch's assessment of CMB's financial condition.
The change in ownership at CMB resulted in the departure of two senior executives. Although CMB has filled the vacant positions with well-qualified individuals with an average of 12 years' industry experience, average company tenure among senior management has dropped to less than one year.
The company's experience of managing the workout or enforcement process for defaulted loans is still limited, and Fitch has not assigned a residential special servicer rating. Fitch also notes that because of the historically low levels of arrears in the Russian mortgage market, few servicers have any extensive experience managing defaulted loans. 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 Russian legal code surrounding mortgage enforcement.
As of 1 October 2010, CMB's servicing portfolio totalled RUB13.7bn including just over 7,500 loans. CMB is the named servicer and special servicer on one RMBS transaction (CityMortgage MBS Finance B.V.) representing approximately 6% of the total servicing portfolio.
Company — City Mortgage Bank
Full nameCity Mortgage Bank