SOUTHERN PACIFIC FINANCING 04-A PLC - Notice to Holders: Borrowing Update

        






SOUTHERN PACIFIC FINANCING 04-A PLC - Notice to Holders: Borrowing Update

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:             [e-mail]

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

19455-3-209-v0.6                     - 1 -                          70-40394314

19455-3-209-v0.6                                                    70-40394314

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