New fears over quality of Northern Rock mortgages
27th August 2008 - 09:36
New evidence that Northern Rock owns a poorer quality mortgage book than its peers has emerged just days after previously unseen documents revealed the Government was warned that the taxpayer could lose up to £1.28bn by nationalising the stricken bank.
The number of repossessions and the value of problem mortgages in Northern Rock’s £40bn securitisation vehicle Granite, which holds the bank’s better loans, have jumped far more sharply than at rivals, according to research by credit rating agency Standard & Poor’s.
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For the three months to June, S&P found that average monthly repossession numbers at Granite jumped from 134 to 353, while the numbers at other banks increased at a far slower rate. “The figure implies that Granite accounts for one in every 13 properties repossessed in the UK over this period,” S&P said.
Problem mortgages, where a borrower is three months or more behind on payments, have also soared.
Of Granite’s total of £40bn of mortgages, £508m of them are behind with repayments, S&P said.
The numbers will raise new questions about the quality of the bank’s mortgage portfolio, the only security the taxpayer has for its remaining £17.5bn loan to the bank.
About one fifth of Northern Rock’s £84bn mortgage book is already expected to be in negative equity by the end of next year due to falling house prices.
Northern Rock is heavily exposed to a market crash because it lent buyers on average a higher proportion of a property’s value than other banks. The risk to the taxpayer was expressed in recently revealed documents prepared for the Treasury by Goldman Sachs that warned nationalisation could cost between £450m and £1.28bn.
The mortgages in Granite are owned by investors who have first claim on the income stream. Anything left after they are paid and a reserve fund is maintained returns to Northern Rock. However, S&P said: “If house prices continue to decline, losses on sales of repossessed properties will increase, placing pressure on cash flows”.
Northern Rock said the reserve fund remained covered and the decline in credit quality of the portfolio had not triggered any asset sales.
There are fears that, should investors demand Granite be unwound, the taxpayer could face significant losses.
(Source: Google)
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