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UK bad bank scraps plan to sell mortgage process unit
UK Asset Resolution has outsourced the business to save tens of millions of pounds, instead of selling the unit, which services £30bn of loans for ex-Bradford and Bingley customers
Government agency UK Asset Resolution has struck a deal to outsource the servicing of its £30bn of loans, largely made up of 228,000 former Bradford and Bingley, Mortgage Express and Northern Rock Asset Management customers.
UKAR had run the loans itself and built up a staff of 1,700 but believes that as UKAR shrinks, the system can work more efficiently if the staff move to a separate firm in the outsourcing deal.
The deal is expected to save tens of millions of pounds for the so-called bad bank, but stops short of the fundraising sell-off that had been considered.
The government agency had looked into options including selling the servicing unit, spinning it off as an independent company in a move which would both raise money for the exchequer and leave an unexpectedly long-term legacy from the financial crisis.
But instead the business’ operations will be outsourced to Computershare.
The 1,700 staff servicing mortgages at UKAR in Sunderland and West Yorkshire will now work for Computershare, and UKAR will pay the firm based on the number of mortgages being serviced and the proportion which are in arrears and so require more work.
UKAR wanted to stop running the service directly because it makes selling portfolios of loans more complicated.
When UKAR sells a loan, state aid rules mean it can no longer process the mortgage. As a result it has to shift the loan to another servicing firm, complicating the deal and adding as much as six months to the sale process.
By outsourcing all of the processing, the sales should be faster. Recent sales include the sale of £13bn of loans to US private equity firm Cerberus and British bank TSB.
In addition, it is difficult to run a processing unit for a shrinking pool of loans – UKAR’s portfolio is down from £95bn when it came into existence to around £35bn today.
“Over time as we reduce the number of mortgages we have, it is increasingly difficult to recruit people to a business in wind-down, to keep morale and motivation up, and that creates operations risks,” said Richard Banks, head of UKAR.
By outsourcing the servicing unit “we significantly reduce the risk of losing our best people, of not understanding the products and of giving poorer service as a consequence.”
In contrast with UKAR, Computershare can also run mortgages for other lenders.
The outsourcing deal runs for an initial term of seven years.