THIS NOTICE IS IMPORTANT AND REQUIRES THE IMMEDIATE ATTENTION OF
NOTEHOLDERS. IF NOTEHOLDERS ARE IN ANY DOUBT AS TO THE ACTION THEY
SHOULD TAKE, THEY SHOULD
SEEK THEIR OWN FINANCIAL AND LEGAL ADVICE, INCLUDING AS TO ANY TAX
CONSEQUENCES, IMMEDIATELY FROM THEIR STOCKBROKER, SOLICITOR, ACCOUNTANT OR
OTHER INDEPENDENT FINANCIAL OR LEGAL ADVISER.
IMPORTANT NOTICE TO THE HOLDERS OF THE
£305,200,000 Class A Mortgage Backed Floating Rate Notes due 2042
(ISIN: XS0190203124, DETACHABLE COUPON: XS0190204106)
£21,000,000 Class B Mortgage Backed Floating Rate Notes due 2042
(ISIN: XS0190204445)
£11,550,000 Class C Mortgage Backed Floating Rate Notes due 2042
(ISIN: XS0190205178)
£8,750,000 Class D Mortgage Backed Floating Rate Notes due 2042
(ISIN: XS0190205681)
£3,500,000 Class E Mortgage Backed Floating Rate Notes due 2042
(ISIN: XS0190206143)
are together referred to as the "Notes".
issued by
SOUTHERN PACIFIC FINANCING 04-A PLC
(the "Issuer")
on or about 28 April 2004
Capitalised terms used but not otherwise defined herein shall
have the meanings ascribed to them in the Terms and Conditions of
the Notes set out in the Trust Deed (the "Trust Deed") dated on or
about 28 April 2004 and entered into
between the Issuer and Capita IRG Trustees Limited (the "Trustee")
and the master definitions schedule (the "Master Definitions
Schedule") dated on or about 28 April
2004 and entered into between, among others, the Issuer and
the Trustee.
The Issuer understands from Acenden Limited (the "Cash/Bond
Administrator" or the "Mortgage Administrator", as applicable) that
following the issue of the last Quarterly Investor Report on
28 September 2012, the Cash/Bond
Administrator has received a number of queries, in particular, on
arrears performance.
In light of the queries received, the Cash/Bond Administrator
felt it would be helpful to provide an update on the transaction
records and reports on arrears performance and how this has been
impacted by certain Financial Services Authority ("FSA") led
regulatory changes. As a consequence of such changes, the Cash/Bond
Administrator is also announcing certain investor reporting
enhancements which are designed to further assist Noteholders and
to provide further clarification on borrower arrears levels and
cash flows.
FSA Policy Statement 10/9
1. On 25 June 2010, the FSA
brought Policy Statement 10/9 ("PS 10/9") into
force. PS 10/9 was intended to provide clarification and to make certain
changes to home finance businesses and, in particular, mortgage arrears
handling. PS 10/9 applies to FSA regulated mortgage contracts only. (From
an operational policy and industry `best practice' perspective, however,
unregulated first charge mortgage loans (i.e. buy-to-let loans) are treated
by the Cash/Bond Administrator in the same way as FSA regulated mortgage
contracts.)
2. One of the changes/clarifications brought in by PS 10/9 (the
"PS 10/9
Change") was MCOB 12.4.1B R which provides that:
"When a customer has a payment shortfall in respect of a
regulated mortgage contract, a firm must ensure that any payments
received from the customer are allocated first towards paying off
the balance of the shortfall (excluding any interest or charge on
that balance)." (Emphasis added.)
Impact and implementation of Policy Statement 10/9
3. Prior to 25 June 2010, payments
made by borrowers towards their arrears
would be applied (in accordance with the relevant originating lender's (the
`Lender') policy) to repay their total arrears which comprised arrears of
contractual monthly instalments and other amounts (such as, for example,
fees, charges, ground rent payments, solicitor costs and payments towards
insurance) which were considered by the Lenders to be due and immediately
payable.
4. In accordance with the terms of the transaction documents,
the Cash/Bond
Administrator allocates cash payments received from borrowers in
the
following priority: fees (including costs), interest; and then
principal.
5. However, post 25 June 2010 and
the PS 10/9 Change, payments made by
borrowers towards their "payment shortfall" had to be applied first to
repay the balance of the shortfall (i.e. the contractual monthly
instalments of interest and/or interest and scheduled principal) (`Payment
Arrears') and only then could any payments be applied to any other amounts
owed (being other amounts that are not Payment Arrears, including fees,
charges, ground rent payments, solicitor costs and payments towards
insurance) (`Other Amounts Owed')).
6. Other Amounts Owed balances attract interest and are secured
by the
mortgage charge. However, post 25 June 2010, it has become a commonly held
view in the mortgage industry that the courts are unlikely to look
favourably on repossession proceedings brought against a borrower by a
lender solely on the basis of Other Amounts Owed during the term of the
loan. Consequently, lenders may not `force' borrowers to pay these amounts
in a scheduled or timely manner, nor can these amounts be capitalised and
amortised to the principal loan balance without the borrower's consent.
7. Common industry practice is to regard the Other Amounts Owed
as an amount
which, while still a debt that is owed (by the borrower) and due, is not an
amount in respect of which a lender will necessarily enforce immediate
payment. Consequently, the Other Amounts Owed are treated as being outside
of the scope of what is commonly referred to as being `in arrears' since it
is an amount that is not able to be determined as being due and immediately
payable. This is supported by the treatment of borrowers who have fully
repaid their Payment Arrears but not the outstanding Other Amounts Owed who
are, accordingly, considered `current' from a regulatory perspective and
from a credit reporting perspective. Note that because the Other Amounts
Owed amount is still a debt that is owed by the borrower, it must be repaid
no later than the end of the term of the loan or in the event a borrower
exits from the loan agreement at an earlier time.
8. Whilst the PS 10/9 Change was a regulatory change and has
affected
servicing in respect of a borrower's account, it has not affected the
provisions of the securitisation documents and the application of cashflow
in accordance with the priority of payments. The effect of the PS10/9
Change is that, while actual deal cashflows should not, in theory, be
impacted (since all amounts that are due and owed accrue interest at the
prevailing interest rate of the loan, whether or not such amounts are
payable immediately), the timing of such cashflows may be delayed (but to
the extent any such delay occurs, the effect is expected to be marginal).
The Impact of Policy Statement 10/9 on the reporting of arrears
in the Quarterly Investor Reports
9. Currently, the Quarterly Investor Reports reflect an arrears
position which
shows `Days in Arrears'/'Delinquencies' as Arrears of Interest and Arrears
of Principal after cash has been allocated to Other Amounts Owed (the `
Reported Delinquencies'). However, from a borrower's perspective, following
the implementation of PS 10/9, the borrower's actual arrears position (i.e.
the Payment Arrears position) is, in fact, different to the Reported
Delinquencies which (as described earlier in this note 9) take into account
Other Amounts Owed. This anomaly accounts for the Reported Delinquencies
reflecting an apparent deterioration in borrower payments when, in fact, a
borrower may be repaying the Payment Arrears and/or is `current' (i.e.
having repaid the Payment Arrears) (albeit, in both cases, with an Other
Amounts Owed balance still outstanding although not immediately payable).
(See notes 6 and 7 above.)
10. To provide a better and more accurate view of cash flows to
the deal and
the performance of arrears and to align reporting to what the Cash/Bond
Administrator believes to be current market practice, the Cash/Bond
Administrator proposes for the purposes of reporting in the Quarterly
Investor Reports, now to show Arrears of Interest and Arrears of Principal
as Payment Arrears. Accordingly, the presentation in the Quarterly Investor
Reports of Days in Arrears/Delinquencies will, going forward, use Payment
Arrears for Arrears of Interest and Arrears of Principal (and, for the
avoidance of doubt, without taking into account any Other Amounts Owed,
that may still be outstanding). In addition, for clarity, the Other Amounts
Owed will now be shown separately in the Quarterly Investor Reports. As
mentioned at note 6, the Other Amounts Owed reflects an additional debt
amount owed by the borrower on which interest accrues.
11. The Cash/Bond Administrator will continue to report the
Reported
Delinquencies in the Quarterly Investor Reports but, in order to
avoid
confusion, proposes, going forward, to refer to these
`delinquencies' or
`arrears' as `Amounts Outstanding'.
12. The Cash/Bond Administrator will begin reporting on this
basis from the
next Quarterly Investor Reports. The Cash/Bond Administrator believes that
these proposals will provide noteholders with greater clarity on how the
deals function to enable a more accurate evaluation of arrears performance.
Further, it is the Cash/Bond Administrator's understanding that these
proposals are consistent with the way in which the industry reports.
Repossession strategy
Finally, for the avoidance of doubt, as a regulated mortgage
administrator, the Mortgage Administrator must carry out its
mortgage administration activities in accordance with the FSA
principles of business and other relevant regulations and
guidance.
The Mortgage Administrator will only begin repossession
proceedings if there are no other forbearance options available to
the borrower. This repossession strategy has not changed.
Further queries can be directed to the Cash/Bond Administrator
and/or the Mortgage Administrator at:
Acenden Limited
4th Floor
47 Mark Lane
London EC3R 7QQ
Attention: Cash Bond Administration Department
e-mail: CBAQueries@Acenden.com
Ref: SOUTHERN PACIFIC FINANCING 04-A PLC
This Notice has been prepared by and issued by the Issuer at the request of the
Cash/Bond Administrator. The Issuer has not independently verified the
information contained herein.
12 November 2012
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19455-3-209-v0.6 70-40394314