Mortgage shortfall debt recovery: making the most of the window of opportunity and ensuring favourable outcomes for borrowers

Mortgage shortfall
debt recovery
making the most of the window of opportunity and
ensuring favourable outcomes for borrowers

3
Contents
Section 1:
Section 2:
Section 3:
Section 4:
Section 5:
Section 6:
About this paper
A brief introduction to HML
Mortgage shortfall debt recovery: the challenges
HML – the solution
Lender case study
Conclusion: is now the window of opportunity?

4
This good practice guide details HML’s
experience of collecting mortgage shortfall
debt, capitalising upon our four unique
selling points (USPs) in order to maximise
the value of mortgage portfolios for both
lenders and debt purchasers.
The first is our market-leading analytics service, which
ensures those borrowers with a high propensity to pay are
contacted as a priority, enabling resources to be focused
in the most appropriate places.
Our second USP is our tailored collections strategies,
which focus on borrower engagement and the most
appropriate outcomes. This, in turn, delivers maximum
value for lenders.
Our third USP is handling reputational risk. Our
subsidiary Specialist Mortgage Services (SMS) collects
mortgage shortfall debt under its brand. The experienced
consultants can judge each borrower’s situation
(supported by analytics) to know when and how to collect
debt. In addition, SMS can hold legal title for lenders and
investors. This has many benefits, including removing the
burden of needing to hold the relevant FCA permissions
and, as a result, widening the potential purchase pool of
mortgage portfolios.
Finally, our specialist mortgage shortfall debt recovery
team has more than 100 years of combined experience
and is a ring-fenced resource. This ensures borrowers
are dealt with by appropriately experienced consultants
with a robust skillset and who know how to engage and
build empathy with borrowers who have this type of debt,
ensuring true value can be achieved for lenders and
portfolio purchasers.
There are many challenges to collecting mortgage
shortfall debt, but HML’s four main USPs, experience
and significant resources are combined within a
single, effective solution that ensures lenders and debt
purchasers can maximise the value of a portfolio.
Section 1:
About this paper

5
HML is a third-party mortgage
administration company that operates in the
financial services sector. It has 25 years of
experience in the outsourcing industry and
is based at four sites - it is headquartered
in Skipton, and also has offices in Glasgow,
Derry and Dublin, with approximately 1,300
employees in total.
It currently has approximately £37 billion of managed
assets on behalf of 50 major clients, including banks and
building societies. Mortgage administration and servicing
is HML’s core service, together with standby servicing and
securitisation, business intelligence and asset trading as
the principal service propositions. HML is also standby to
around £60 billion of assets.
In August 2013, Fitch announced that HML’s UK
residential primary (prime and sub-prime) servicer ratings
had been upgraded to RPS1- from RPS2+. HML’s new
RPS1- primary (prime) servicer rating is the highest of any
third-party mortgage administration company in the UK
and Ireland. Its RPS1- primary (sub-prime) rating is the
highest in Europe.
Fitch affirmed HML’s Irish residential mortgage primary
servicer ratings for both prime and sub-prime at RPS2,
while its UK special servicer rating was affirmed at RSS21
.
In August 2013, S&P revised upwards the outlook of
HML’s primary servicing of residential mortgages in the UK
from stable to positive. It also affirmed the above average
rankings for HML as a primary and special servicer of
UK residential mortgages, and as a primary servicer of
residential mortgages in Ireland.
In addition, HML’s stable outlook was affirmed for the
special servicing of UK mortgages and the primary
servicing of Irish residential mortgages2
.
Section 2:
A brief introduction to HML
SKIPTON HQ
(opened 2010)
DUBLIN
(opened 2013)
GLASGOW
(opened 2007)
DERRY
(opened 2004)
1
www.hml.co.uk/latest-thinking/2013/08/fitch-upgrades-hml-to-rps1-for-uk-residential-prime-and-sub-prime/
2
www.hml.co.uk/latest-thinking/2013/08/hml-receives-sp-outlook-revision/

6
Executive summary: The successful
recovery of mortgage shortfall debt
requires specialist skills. It takes time
and commitment that lenders and debt
purchasers may not have, or they may
have no inclination to be involved in the
day-to-day running of such a complex
proposition. There is also the perceived
reputational risk involved with attempting
to collect money from individuals who
have – in the main – lost their primary
residence after experiencing difficult
financial circumstances. This perception
is why many lenders decide not to pursue
mortgage shortfall debt recovery, despite
the latent profit potential.
There are several challenges surrounding the recovery
of mortgage shortfall debt that can make it unattractive
for lenders to pursue this type of outstanding balance
due to the confrontational relationship this might create
between the lender and borrower. Almost all mortgage
shortfall debts have arisen as a result of a borrower losing
their primary residence through repossession, meaning
they have more than likely experienced acute financial
difficulties. As such, making up the shortfall between
their mortgage and what their property sold for is rarely
a priority for the borrower. In some cases, they might not
even be aware that they are liable for the debt and believe
that once a property is sold, the problem has ‘gone away’.
The four main challenges involved with mortgage shortfall
debt recovery are:
Section 3:
Mortgage shortfall debt recovery:
the challenges
4. Provisioning
3. Resource intensive
2. Complexity
1. Reputational risk

7
1: Reputational risk
One of the main reasons why many lenders decide not to
pursue mortgage shortfall debt recovery is because of the
perceived reputational risk involved. All borrowers who
have a mortgage shortfall debt are currently experiencing
or have experienced difficult circumstances and financial
institutions can be wary about how to proceed. As
such, some do not intend to recover mortgage shortfall
debt and simply include it within their provisioning. On
the other hand, trying to collect too soon could prove
confrontational; it is essential that the situation is correctly
judged to know when the best time to collect mortgage
shortfall debt is.
There is also the reputational risk that could arise should
mortgage shortfall debt recovery strategies not adhere to
those laid out within the Financial Conduct Authority (FCA)
Handbook, which are particularly complex.
2: Complexity
Recovering mortgage shortfall debt can be extremely
complex, from drawing upon advanced analytics (which
requires experienced data analysts) to having the
appropriate regulatory permissions from the FCA. It is
also paramount that consultants tasked with collecting
the debt can empathise and have the right people skills,
especially as in some cases, the lender and borrower
relationship may have completely broken down. While the
regulatory hurdles may not be an issue for some major
lenders, a debt purchaser intending to acquire a mortgage
portfolio with shortfall debt within it may not have the time,
inclination or knowledge to obtain the right permissions to
enable money to be recovered. In addition, it might not be
commercially viable to become a regulated entity simply to
collect mortgage shortfall debt.
3: Resource intensive
The traditional process of recovering mortgage shortfall
debt can be resource intensive. For the collection of
shortfall debt to be truly effective, tools such as advanced
analytics and extensive multi-channel collections
strategies need to be utilised. Some lenders and debt
purchasers may not have the time or inclination to
establish the resources required for a targeted shortfall
debt recovery strategy.
Advanced analytics and other powerful data tools are
not only complex, but also take time to build, test and
optimise in order to trace, profile, segment and target
those borrowers who have the highest propensity of
recovery i.e allocate resources to where the greatest
opportunity of success exists.
4: Provisioning
Many lenders have already provided for the losses from
mortgage shortfall debt. Therefore, effectively recovered
cash would flow straight to bottom-line profit for lenders,
making it an ‘immediate win’.
Section 3:
Continued

8
4.1: USP 1: Market-leading
analytics
Executive summary: A successful
mortgage shortfall debt recovery strategy
begins with advanced analytics, which
identify those borrowers with a high
propensity to pay, enabling resources
to be focused in the most appropriate
places. Combined with the latest
trace and locate, behavioural and
consumer credit data, our advanced
analytics enable us to deliver a bespoke
collections approach tailored to each
lender and each of their borrower’s
circumstances. This sets us apart from
traditional methods employed by debt
collection companies, that often simply
methodically work through a borrower
list, whether or not contacting that
individual is in both the lender’s and the
borrower’s best interests. By continually
refining our segmentation and collections
strategies, we can take account of
changing borrower circumstances.
HML’s market-leading analytics is the first USP of our
mortgage shortfall debt recovery service. A large number
of typical debt companies that are tasked with collecting
mortgage shortfall debt simply work their way through
a borrower list, contacting each individual one by one.
From the experience gained by working mortgage shortfall
debt portfolios, HML has found this does not represent a
good practice approach and does not result in the best
outcomes for borrowers.
Having access to in-depth information at the right time
is essential to shape a successful shortfall debt recovery
strategy, and can be used to assess each borrower’s
propensity and willingness to pay. This ensures the most
appropriate outcomes for borrowers can be tailored
to their unique circumstances, minimising the risk of
borrower detriment.
Our advanced analytics are used in conjunction with
credit reference agency data to ensure the borrowers who
are most able to start repaying their mortgage shortfall
debt are contacted first, and those individuals who are
not in a position to pay are monitored for any changes
in their circumstances. Our process also makes sure
that vulnerable customers are dealt with by experienced
consultants with the required skillset and are not
inappropriately contacted.
Section 4:
HML – the solution
“Our market-leading advanced analytics, used in
conjunction with credit reference agency data, means
our lenders can be confident that our borrower contact
and mortgage shortfall debt recovery strategies are
tailored to ensure the most appropriate outcomes
for borrowers and to extract maximum value from a
portfolio. In-depth information, delivered at the right
time, empowers our specialist shortfall debt recovery
team to have more informed and deeper conversations
with borrowers. The resulting performance uplift we have
experienced is testament to placing analytics at the heart
of mortgage shortfall debt recovery strategies.”
Damian Riley,
director of business intelligence at HML

9
Credit reference agency data
We begin the analytics process by drawing upon credit
reference agency data, which includes a monthly file
of confirmed addresses and telephone numbers, credit
account data and daily alerts that monitor a borrower’s
credit file. For example, when a borrower makes a
significant payment on a credit card, this is flagged up.
By having a view of a borrower’s repayment behaviour
regarding different financial products and their latest
contact details, we can then use our advanced analytics
to profile and segment a mortgage shortfall debt portfolio
and be confident that we are contacting the right individual
at the correct address and at the right time.
Advanced analytics
Once we have obtained the latest contact and consumer
credit data and Analysed the behaviour of borrowers, we
can then profile and Segment based on this information.
Borrowers are segmented into several categories,
examples of which can be viewed below:
Being able to Segment borrowers in this way means we
can prioritise our contact with them and ensure a suitable
collections strategy is adopted that will result in the most
appropriate outcomes for both our lenders and their
borrowers.
The Collections stage of the process draws upon the
analytics outputs to drive the collections strategies, which
includes contact that is tailored to each borrower segment.
Should contact and collection not be appropriate, such
as in the case of non-homeowners with a low propensity
to pay, then the next stage is to Monitor. Monitoring
includes the use of daily alerts which notify us if there
is a significant improvement in a borrower’s financial
circumstances, including new lending, settlement, balance
reductions and improvements in arrears, which are all
broken down by product type. This allows us to make early
contact with the borrower, so we can have the relevant
discussions about their change in circumstances.
Finally, like all of our analytics processes, the final stage
is to Review and use Management Information to provide
insight into a mortgage shortfall debt portfolio and its
performance. This enables us to assess the effectiveness
of our collections strategies and allows us to refine them,
if required.
Section 4.1:
Continued
SegmentReview
Analyse
Collect
Homeowners
with equity
Non-homeowners with
high propensity to pay
Buy-to-let landlords and
other ‘special cases’
Non-homeowners with
low propensity to pay
No propensity
to pay

10
Section 4.2:
4.2: USP 2: Collections
strategies
Executive summary: Drawing upon
our market-leading advanced analytics,
our mortgage shortfall debt recovery
collections strategies can then be
shaped. Tailoring contact and collections
to each individual not only ensures
the most appropriate outcomes for
borrowers, but also that our lender is
getting the best possible value. With our
resources focused on such a tailored
and detailed approach, this minimises
‘waste of time and effort’, freeing up
our specialist team to closely work
with borrowers. Increasing borrower
engagement through a targeted
approach is key to recovering mortgage
shortfall debt. Borrower engagement
can take time to build and requires the
right balance between collecting debt
and understanding the individual’s
circumstances. This is a balance that
requires experience and a specific
skillset.
Placing advanced analytics and conduct risk at the heart
of our shortfall debt recovery collections strategies means
we can ensure they are as effective as possible and that
the right borrowers are targeted at the right time3
. We tailor
our collections strategies to each individual within each
segment. Our collections strategies are as follows:
The experienced forensic consultants within HML’s
specialised mortgage shortfall debt recovery team are
responsible for deploying the collections strategies for
identified homeowners who have equity in other identified
properties. Using Land Registry records, they assess the
equity within a borrower’s property and review their credit
profile before deciding upon the most appropriate action
to take.
Equity within the property
If there is equity within a property, the litigation process
will commence and an interim charging order placed
against the property. Our consultants will then attempt to
contact the borrower in line with relevant FCA regulations.
Conduct risk issues are mitigated throughout the process
by employing a compliant call framework and letter suite
and always completing an income and expenditure review
in order to assess any repayment offers from a borrower.
This ensures that the borrower’s offer is appropriate for
their circumstances.
If no repayment resolution or contact with the borrower is
made, we will place a full charge against the property and
eventually progress to a forced sale. However, throughout
this process we continue to try and engage with the
borrower to negotiate a settlement or repayment plan
which is acceptable to both the lender and the borrower.
No equity within the property
If there is no equity within a home, we will look to proceed
to an interim charge to ensure our lender is recognised
as holding an interest in the property. If we have
successfully engaged with the borrower regarding a full
and final settlement, we will remove the charge following
repayment. However, if this has not been possible, we will
regularly monitor the value of the property until there is
sufficient equity to further progress the case.
3
www.fca.org.uk/your-fca/documents/corporate/fca-risk-outlook-2014
Homeowners with equity

11
Section 4.2:
Continued
If a borrower is identified as a non-homeowner, but with a
high propensity to pay, this means they have recent good
consumer credit behaviour and no repayment defaults or
county court judgments (CCJs) within the last 12 months,
amongst other criteria. This segment can further be broken
down into those borrowers who are already in a mortgage
shortfall debt recovery arrangement and those who are
not.
In an arrangement
Our team will work with the borrower to ensure they
continue to meet the conditions of their arrangement or
increase it further, and use consumer credit information
and analytics to regularly assess their propensity score to
check their circumstances have not changed.
Regular borrower contact is central to this collections
strategy, for both those borrowers who continue to meet
their arrangement and those who break it. We use a variety
of contact channels, including a bespoke letter suite,
telephone calls, field agents and, if required, solicitor
services. If circumstances improve, our collectors will
ask for increased repayments in line with the borrower’s
affordability.
Not in an arrangement
For non-homeowners who are not in an arrangement, our
collections strategies are shaped to their propensity score.
This ensures resources are appropriately focused on those
accounts with the highest expected ability to service the
mortgage shortfall debt, resulting in value for our lenders
and the most appropriate outcomes for borrowers. For
borrowers who are identified as having a very high or high
propensity to pay, the following strategies are adopted:
Very high propensity
The collection strategy for borrowers segmented as having
a very high propensity to pay includes daily telephone call
attempts until contact is made and the potential to instruct
field agent visits or instigate legal action all within eight to
12 weeks of the initial review, dependent on the individual
case. If appropriate, there will be a court hearing in order
to establish the borrower’s assets and an attachment of
earnings to allow us to recover repayments directly from
their wages.
The borrower will always be sent letters requesting to
discuss the mortgage shortfall debt, before we would
make the decision to either refer their case to a field agent
or take legal action. The borrower is always notified ahead
of any referrals to field agents or legal entities.
High propensity
These cases are progressed as above, except there will
be a minimum of three telephone call attempts a week
and the potential to instruct field agent visits or instigate
legal action within three to six months of the initial review,
dependent on the individual case.
In order to benefit from a more detailed understanding of
our propensity segments, please get in touch using the
contact details at the end of this document.
Non-homeowners with
high propensity to pay

12
Section 4.2:
Continued
Borrowers who are identified as buy-to-let landlords
and other ‘special cases’, such as owning multiple
properties or having multiple mortgage shortfall debts,
also have collections strategies tailored to their unique
circumstances.
Where litigation is identified as being the best route of
action, an experienced legal representative is appointed
to manage the process. For those borrowers who are
currently insolvent, the consultant will liaise with the
insolvency practitioner, ensuring the mortgage shortfall
debt is acknowledged and that we receive the relevant
dividend payments. This is continually monitored to make
sure the agreement is met.
Those borrowers who own multiple property portfolios
or have several shortfall debts and who have been
segmented as having a very high or high propensity to pay
are managed by an experienced forensic investigator, and
the case will progress as per the collections strategies laid
out in the earlier homeowners process.
Finally, there are special cases with no propensity to pay,
such as borrowers who were repossessed more than six
years ago and have received no lender contact or are
not in an arrangement. In England, Wales and Northern
Ireland, a lender has six years to contact a borrower to
seek repayment; this stands at five years in Scotland4
.
4
www.cml.org.uk/cml/consumers/guides/debt
www.fshandbook.info/FS/print/handbook/MCOB/13
Buy-to-let landlords
and other ‘special cases’
HML’s propensity segments
Customer has
recent good credit
behaviour on core
credit
V HIGH
Customer has
recent good credit
behaviour on non-
core credit
HIGH
Customer has
no recent good
behaviour, but also no
recent CCJs/defaults
MED
Customer has
recent CCJs and/or
defaultsLOW

13
If a borrower is identified as a non-homeowner, but with
a medium or low propensity to pay, this means they have
no recent good consumer credit behaviour and may have
defaulted or received a CCJ within the last 12 months,
amongst other criteria. For borrowers who are identified as
having a medium or low propensity to pay, the following
strategies are adopted:
Medium propensity
Borrowers identified as having a medium propensity
to pay will receive a minimum of one telephone call
attempt per month and there is the potential to instruct
field agent visits or to instigate legal action within six
months of the initial review, dependent on the individual
case. Our consultants are empowered to adopt a flexible
approach depending on the borrower’s circumstances,
and may instead decide to ‘park’ the case and monitor
their consumer credit file for a significant change in
circumstances.
Low propensity
Borrowers identified as having a low propensity to
pay are contacted in the first instance to notify of the
intention to collect, but that due to their current financial
circumstances, action will not be immediate. Following
validation, there is no regular contact and the case is
placed on hold and the borrower’s consumer credit
behaviour monitored as per medium propensity cases.
There will be circumstances where borrowers do not have
the propensity to repay their mortgage shortfall debt.
We will look to offer external free debt advice to help
borrowers with their overall indebtness.
In conclusion, HML does not adopt a ‘one-size-fits-all’
approach when it comes to its collections strategies.
As can be seen from our results detailed in Section 5,
tailored, analytics-driven collections strategies supported
by regular borrower contact does work and results in
increased bottom-line profit for lenders and appropriate
outcomes for their borrowers.
Section 4.2:
Continued
Non-homeowners
with low propensity to pay
No propensity to pay

14
Section 4.3:
4.3: USP 3: SMS
Executive summary: The third USP is
handling reputational risk. Our subsidiary
SMS collects mortgage shortfall debt
under its brand. The experienced
consultants can judge each borrower’s
situation (supported by analytics) to
know when and how to collect debt.
In addition, SMS can hold legal title for
lenders and investors. This has many
benefits, including removing the burden
of needing to hold the relevant FCA
permissions and, as a result, widening
the potential purchase pool of mortgage
portfolios.
As mentioned in Section 3, there are several challenges to
collecting mortgage shortfall debt that mean many lenders
have traditionally stayed away from doing so. One of the
biggest reasons is the perceived reputational risk involved.
One of HML’s unique selling points is our oversight and
legal title wholly-owned subsidiary SMS.
Lenders can either have shortfall debt collected under their
brand using their regulatory permissions, or use the SMS
vehicle, with the latter option particularly attractive when
there is a perceived reputational risk involved. All contact
and collections will then be carried out under the SMS
brand by experienced consultants who can judge each
borrower’s situation (supported by analytics) to know when
and how to collect debt.
Another benefit of using SMS is that it can also hold legal
title for a lender or mortgage portfolio investor. Mortgage
book ownership can be viewed as two elements; beneficial
owner and legal title. Whoever is the beneficial owner
takes on the credit risk, but also benefits from the financial
returns. Whoever owns the legal title is responsible for the
regulatory and conduct risk.
In order to hold legal title, the relevant permissions are
required from the FCA. There is effort, cost and resources
involved with applying for these, and investors may not
want to go through the process and instead wish to remain
focused on the core of their business - finding investment
opportunities and generating a healthy return.
Mortgage shortfall
debt portfolio
SMS
Buyer
Financial
return
Legal title
Beneficial title
Collections
and recovery
of mortgage
shortfall debt

15
Section 4.3:
Continued
Outsourcing legal title to SMS means it will hold the
regulatory permissions, including the requirement to
develop and implement policies. SMS will provide the
regulatory risk management and Approved Persons;
it is the lender in the eyes of the FCA and borrowers.
The option to outsource legal title therefore provides
the opportunity for a wider potential purchase pool of
mortgage portfolios, with a number of different types of
investor able to enter the market and benefit from the
available returns.
In addition, investors who outsource legal title can
also sell their portfolios to others who do not have the
relevant FCA permissions. This widens the potential
purchaser pool and is therefore an attractive option.
Existing lenders with mortgage books that are closed to
new business and are currently in run-off can also benefit
from outsourcing legal title. Run-off has been relatively
slow since many lenders tightened lending criteria, and
many lenders face having to manage these books for a
number of years. This is because the prices that asset
purchasers are offering for portfolios are often lower than
the amount that lenders are willing to sell at. Outsourcing
these books instead – some of which have high levels of
arrears – takes the administrative burden of managing
future regulatory change off the shoulders of lenders.
In addition, investors who
outsource legal title can also sell
their portfolios to others who
do not have the relevant FCA
permissions. This widens the
potential purchaser pool and is
therefore an attractive option.

16
Section 4.4:
4.4: USP 4: Specialist shortfall
debt recovery team
Executive summary: HML’s mortgage
shortfall debt team has more than 100
years of combined experience and is a
ring-fenced resource. With the individuals
within this team fully focused on
collecting mortgage shortfall debt, true
value can be achieved for lenders and
portfolio purchasers. It also means that
borrowers are dealt with by appropriately
experienced consultants who can
empathise with their situation and
ensure the right contact and collections
strategies are deployed for the most
appropriate borrower outcomes.
Collecting mortgage shortfall debt is a complex process,
and therefore requires an intelligent, targeted and
comprehensive approach that is deployed by individuals
with the relevant skillset and experience. HML has a
specialist shortfall debt recovery team that dedicates
its entire resource to recovering this type of debt from
borrowers.
The structure of the team can be seen below:
Director of Business
Intelligence (BI)
Head of
BI Analytics
Shortfall Debt
Recovery (SDR)
Collections Manager
SDR
Team Leader
SDR Senior
Consultant
BI Analytics
Team
BI Analytics
Manager
Specialist
Forensic
Collections Team
Business as Usual
Collections Team
Admin Support
Team

17
This ring-fenced, self-contained resource has more
than 100 years of combined experience, with a strong
skillset that is aligned to each role. Our forensic and other
collections consultants not only have robust operational
experience of recovering debt, but also the soft skills that
are required to empathise with borrowers who have often
experienced difficult financial circumstances.
While, of course, our targeted approach driven by analytics
helps to realise value for our lenders, at the centre of our
collections strategies is the need to treat borrowers fairly
and ensure the most appropriate outcomes for borrowers.
Unlike many debt collection agencies that have to attempt
contact and engagement with numerous customers
to allow them to build a customer profile and look to
maximise recoveries, our specialist team (informed by our
analytics) know exactly who to contact, when and how.
The team also consists of forensic consultants who deploy
the collections strategies for homeowners and non-
standard cases, as the circumstances surrounding these
collections are often more complex, such as establishing
a borrower’s assets and their value, particularly in cases
where there are multiple shortfalls and/or properties.
In addition, our administration support team deal with
tasks such as creating and sending the legal letter suite,
which allows our collections staff to solely focus on
deploying the right collections strategies for effective and
efficient mortgage shortfall debt recovery.
Section 4.4:
Continued

18
Section 5:
Lender case study
Executive summary: An increase in
mortgage shortfall debt recoveries of
300 per cent year-on-year was enjoyed
by one of our lenders as a result of our
analytics-driven campaign. Recovery
uplifts were particularly strong for special
cases, showing how having a dedicated
shortfall debt recovery team with forensic
consultants who deploy targeted
collections strategies provides value and
maximises the use of resources.
As seen in the following graphs, the performance uplift
enjoyed by one of our lenders is clear, and shows how a
complete advanced analytics-driven solution can increase
shortfall debt collections and ensure the most appropriate
outcomes for borrowers. By performance uplift, we
are referring to the monthly level of cash collected and
negotiated full and final settlements.
As seen in this graph, when HML commenced a
segmentation strategy for a lender in October 2012,
overall performance uplift significantly increased. Taking
the average (100 per cent) recovery rate pre analytics as a
benchmark, this increased to 300 per cent post analytics
being implemented.
65%
85%
137%
95%
101%
109%
115%
107%
86%
213%
139%
110%
455%
108%
308%
382%
378%
65%594%
212%
177%
347%
481%
197%
472%
216%
205%
410%
100%
300%
Start of
analytics-based
segmentation
strategy
Jan
12Feb
12M
ar12Apr12M
ay
12Jun
12
Jul12Aug
12Sep
12O
ct12N
ov
12Dec
12Jan
13Feb
13M
ar13Apr13M
ay
13Jun
13
Jul13Aug
13Sep
13O
ct13N
ov
13Dec
13Jan
14Feb
14M
ar14
Pre-analytics
average
Post-analytics
average
uplift
100%
200%
300%
400%
500%
600%
Monthly Results Vs. Pre-Analytics Average Post-Analytics Average Uplift

19
Section 5:
Continued
As seen in this graph, performance uplift has been
experienced across all of the borrower segments,
particularly for special high and low propensity to pay
cases and homeowners. This is a year-on-year comparison
for 2012 vs 2013.
For special high propensity to pay cases, a performance
uplift of 1,700 per cent has been seen, which is testament
to the experienced forensic consultants employed within
our specialist shortfall debt recovery team who deal with
these special cases.
What our lender says:
“We were really pleased with the results -
the use of predictive scorecards and credit
alerts ensured the HML team made far better
use of resources than with our previous
untargeted approach, and this, combined
with an experienced, skilled team of agents,
led to an increase in recoveries of 300 per
cent year-on-year.”
248%
846%
1700%
700%
853%
389%
Arranged
non-hom
eow
ner
H
om
eow
ner
Specialcases
w
ith
a
high
propensityU
narranged
non-hom
eow
ners
Specialcases
w
ith
a
low
propensity
Average
recoveries
as
%
ofrec.
200%
400%
600%
800%
1000%
1200%
1400%
1600%
1800%
Performance Improvement

20
Section 6:
Conclusion: is now the window of
opportunity?
Executive summary: With the base rate
remaining at a historic low of 0.5 per
cent as of June 2014, now could provide
lenders and mortgage portfolio investors
with the perfect window of opportunity
to collect mortgage shortfall debt.
The combination of more manageable
mortgage repayments and potentially
more affordable unsecured debt products
means many consumers may currently
have some financial breathing space to
tackle their mortgage shortfall debt.
In addition, with house prices in the UK
generally climbing, those lenders that
decide to progress with forced sales
could find they obtain a higher selling
price than they may have expected
to. This results in a more favourable
outcome for the borrower, who should
hopefully have their previous debt cleared
by the funds raised through the sale.
The positive impact upon bottom-line profit is one reason
why it is attractive to collect mortgage shortfall debt;
however, it could be argued that now presents the optimal
window of opportunity due to the historic low base rate of
0.5 per cent and increasing house prices. However, with
the potential for the base rate to rise over the next 12 to
18 months, mortgage portfolio owners need to prepare for
what this may result in for borrower affordability; the key
message is act now.
In those cases where shortfall debt belongs to a
homeowner, the more manageable mortgage repayments
due to low interest rates should provide the borrower
with breathing space to make mortgage shortfall debt
repayments. However, in those cases where a forced sale
is progressed, higher property prices are favourable to
both the lender and borrower. In the case of the lender, it
can obviously achieve a higher selling price. The higher
the amount that can be used to clear the previous shortfall
debt, the less the borrower will owe – with the most
favourable outcome being that the debt is completely
serviced by the sale of a property. HML’s recent negative
equity report also noted that in Q1 2011, there were
826,800 mortgages in the UK advanced since 2005 in
negative equity. By Q4 2013, this had declined to 463,415,
and therefore shows how many borrowers now have more
equity in their properties.
SP servicer evaluation report,
September 2013:
“HML’s risk management discipline is
robust and operates in a controlled
environment, in our view5
.”
5
http://www.standardandpoors.com/ratings/articles/en/us/?articleType=HTMLassetID=1245357525005

21
Section 6:
Continued
For those borrowers who do not own a property,
increasing positive economic sentiment may mean their
unsecured debts and other financial commitments are
more manageable, allowing them to make repayments
towards the mortgage shortfall debt. However, it is also
important to contact these individuals not only to seek
repayment, but also to make sure contact made to them
is within the Council of Mortgage Lenders and FCA
guidelines.
Increasing positive sentiment surrounding the mortgage
market and economy also makes now an ideal time
for debt purchasers to acquire portfolios. HML has the
advanced analytics, skills and 25 years of experience
within the third-party mortgage administration market
to provide a complete intelligent shortfall debt recovery
solution, deployed within a compliant quality framework.
HML’s longevity and experience have contributed to our
leading servicer ratings. Our UK residential primary (sub-
prime) rating by Fitch is the highest in Europe and our
prime rating is the equal highest rating of any servicer in
the world. Both Standard Poor’s (SP) and Fitch refer to
our quality culture.
It is paramount that both lenders and investors can
draw upon an experienced, ring-fenced mortgage
shortfall debt recovery resource that solely focuses on
the recovery of this type of debt. This allows specialist
skills to be developed and allows a culture of compliant,
quality-driven collections activity to be embedded. This
ensures borrowers are fairly dealt with by appropriately
experienced consultants. Once you have access to
market-leading advanced analytics, tailored collections
strategies, the experienced skillset and an entity that
provides the right permissions and regulatory oversight,
the four main challenges to successful mortgage shortfall
debt recovery can be overcome.
6
http://www.fitchratings.com/creditdesk/press_releases/detail.cfm?pr_id=799778
Fitch report into HML’s ratings upgrade,
August 2013:
“HML’s internal control and risk management
framework are particularly robust, which
when combined with an increased focus on
staff training, allow HML to have an excellent
level of control and efficiency6
.”
To find out how HML can assist you
with mortgage shortfall debt recovery,
contact Damian Riley, director of
business intelligence, on
damian.riley@hml.co.uk or
07824991857.

www.hml.co.uk
www.hml.ie
www.twitter.com/HMLcorporate
www.twitter.com/HMLIreland
www.linkedin.com/company/hml

Mortgage shortfall debt recovery: making the most of the window of opportunity and ensuring favourable outcomes for borrowers

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Mortgage shortfall debt recovery: making the most of the window of opportunity and ensuring favourable outcomes for borrowers