As of February 2012, loans more than 360 days delinquent compromised 9.9% of the outstanding principle balance of the portfolio.
Moody’s said that only 10% of loans that were more than 360 days delinquent as of February 2011 had improved their performance.
The agency said it considers loans with delinquencies exceeding 360 days as “a proxy for additional future increases in repossessions and resulting losses above current losses realization trends.”
Homeloan Management Limited (HML), which is part of Skipton Building Society, acts as servicer and back-up cash manager for the KMS notes.
Moody’s has cited HML as a “payment disruption risk.”
It said that HML’s cash management arrangements are “not compliant” with its operational risk criteria.
A spokesman for Kensington Mortgages said: “As Moody’s note, the downgrade was driven by the exposure to payment disruption risk. Moody’s reassessed the ratings in line with their new operational risk criteria released in June 2011 and it is the increased requirements within this new criteria that has driven the downgrade.”
Moody’s added that factors which would negatively affect some of the ratings in KMS include uncertainty over interest rates and house prices; and lower than assumed realised recovery rates or higher than assumed default rates.
It said that uncertainty also stems from the timing of a servicing transfer and the credit strengths of the back-up servicer.
“Should a servicing transfer take longer than expected following an operational disruption or the credit strength of the back-up servicers sponsors deterioriate, the rating would be negatively affected,” said Moody’s.
HML declined to comment.
