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Raising the rooftop

Lender Profile After recent setbacks, sub-prime lender Rooftop is aiming for growth of 20 to 30 per cent. Guy Anker reports.

Rooftop is looking forward after a tough few months .

The sub-prime lender has had positive feedback from investors over its latest portfolio of loans to be securitised in October and has taken back control of some of the servicing of its mortgage book which it hopes will reduce the amount of any subsequent losses from arrears and repossessions.

Rooftop, which has a portfolio of loans totalling more than £1bn, saw one set of securitised loans, known as Farringdon 1, downgraded by rating agency Fitch last year, after having to dip into its reserves twice to plug losses due to poor arrears’ performance.

Three tranches from Farringdon 2 also received a negative rating from Fitch late last year.

But the company says it is over most of those problems. Chief executive Ginny Darrow says: “I think we have made a lot of changes to the structure of the company and we have moved forward. This will be a growth year for us and we are evaluating what we are doing to take us down that route. We are looking to increase volume in the next year and have target levels of 20-30 per cent growth.”

One factor that could help reduce future losses is that it virtually pulled out of the heavy-adverse sector last year as it felt it could not compete in a market where the cost of loans failed to match the risk.

The lack of heavy-adverse business is perhaps best demonstrated by comparing its Farringdon securitisations, of which almost half the loans included were heavy adverse. Its latest securitisation, Mansard 2006-1, contained less than 1.5 per cent of heavy-adverse mortgages from the £500m pool.

The final quarter of last year also saw Rooftop bring most of its servicing in house on Mansard. It will be headed by Rooftop director of the special servicing division Jonathan Naylor. There are also units for loss mitigation, legal problems and property sales.

Naylor says: “We want the portfolio to do better and it applies to most businesses that if you take control of the most important parts in the business, then you should do better.”

Darrow adds: “As part of Mansard, Rooftop is the named servicer. It is also the originator, so it has vested interest in the loan, not just loans in arrears but across the board. It is important for us and it is a huge focus to be sure that we are doing what it says on the tin.”

Mansard received a positive response from investors, partly because it is less risky, and a second portfolio is expected to be released in the first quarter of this year – Mansard 2007-1.

Darrow says: “The investor response has been very positive and the market understands the differences between the two deals – Mansard and Farringdon. We have been able to sell the benefits attractively and we have investors looking at the next deal. The investor reaction is due to a number of reasons, including the structure of the loans and the servicing.”

However, while figures published last week supported Rooftop’s claims that Mansard is performing well, as is Farringdon 1 following its troubled 2006, the same cannot be said for Farringdon 2.

The lender was forced to plug a £216,000 gap by dipping into its reserves, although Naylor points out that those losses came from only 10 repossessed properties, three of which constituted 80 per cent of the shortfall. Rooftop is likely to seek damages from valuers for negligence on two of those three properties.

He adds: “There was not much real surprise from those results as we knew how they were performing throughout the year.”

Part of the changes at the lender are also on the personnel side, with Darrow only being brought in last summer in an internal move from the investment bank behind Rooftop, Bear Stearns.

Naylor and finance director Mark Davies were also appointed to the board, while Guy Garrard was brought in from packager EM Financial as sales director to help build relationships with Rooftop’s packager partners.

On the packager side, Rooftop set out a change of strategy last November. After a review, the panel of more than 150 packagers was reduced to less than 60. It also bought Southend-based intermediary ISL last September.

“We integrated ISL and brought that in-house, in London,” says Darrow. “That led us to consolidate relationships with packagers and reduce the number of partner packagers. It is a focused list and we want to build deeper and stronger relationships with them. We brought in Guy Garrard to concentrate on the core group of packagers as he has a lot of experience in that sector.”

Rooftop sees its new strategy as an opportunity to generate more growth but it also feels the overall sub-prime market in the UK is in good shape, despite some well-documented issues such as growing arrears, repossessions and the increase in interest rates which could hit at-risk borrowers’ ability to repay.

Darrow also reaffirms Bear Stearns’ commitment to the UK sub-prime market. She says: “UK sub-prime is still vibrant and there are opportunities out there but we need to get better at identifying risk and pricing correctly.

“We have some concerns about the US market as some sub-prime lenders have stopped selling loans. There is a lot of buying and selling of block packages of loans and Wall Street firms buying from big organisations. We are here to stay and Bear Stearns wants to expand Rooftop.”

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