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Name | Symbol | Market | Type |
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Sthn.pac.42c1ca | LSE:52MD | London | Bond |
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0.00 | 0.00% | 0 | - |
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 €100,000,000 Class A1a Mortgage Backed Floating Rate Notes due 2025 (ISIN: XS0196609829, US84359VAA08) $100,000,000 Class A1b Mortgage Backed Floating Rate Notes due 2025 (ISIN: XS0196610835, US84359VAB80) £180,900,000 Class A1c Mortgage Backed Floating Rate Notes due 2025 (ISIN: XS0196611569, US84359VAC63) €100,000,000 Class A2a Mortgage Backed Floating Rate Notes due 2042 (ISIN: XS0196612021, US84359VAD47) £235,200,000 Class A2c Mortgage Backed Floating Rate Notes due 2042 (ISIN: XS0196612963, DETACHABLE COUPON: XS0197412736) $22,500,000 Class B1b Mortgage Backed Floating Rate Notes due 2042 (ISIN: XS0196613425, US84359VAH50) £31,600,000 Class B1c Mortgage Backed Floating Rate Notes due 2042 (ISIN: XS0196614829, US84359VAJ17) €5,000,000 Class C1a Mortgage Backed Floating Rate Notes due 2042 (ISIN: XS0196615396, US84359VAK89) £19,400,000 Class C1c Mortgage Backed Floating Rate Notes due 2042 (ISIN: XS0196616360, US84359VAM46) €5,000,000 Class D1a Mortgage Backed Floating Rate Notes due 2042 (ISIN: XS0196616527, US84359VAN29) £19,400,000 Class D1c Mortgage Backed Floating Rate Notes due 2042 (ISIN: XS0196618069, US84359VAQ59) £7,000,000 Class E Mortgage Backed Floating Rate Notes due 2042 (ISIN: XS0196618499) are together referred to as the "Notes". issued by SOUTHERN PACIFIC SECURITIES 04-2 PLC (the "Issuer") on or about 9 August 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 9 August 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 9 August 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 SECURITIES 04-2 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 19455-3-213-v0.6 - 4 - 70-40394314 19455-3-213-v0.6 70-40394314
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