Mortgages: Debt and fraud plunge B&B £26m into red

[Legal Beagles]

Bank says arrears on residential mortgages increasing and the outlook remains uncertain with housing market in decline

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[Amethyst]

Re: Mortgages: Debt and fraud plunge B&B £26m into red

• Business
• Bradford & Bingley

Mortgages: Debt and fraud plunge B&B £26m into red

· Lender says residential mortgages are main worry
· Chairman insists 'safety first' strategy is working

• Phillip Inman
• The Guardian,
• Saturday August 30 2008
• Article history

Bradford & Bingley, Britain's largest buy-to-let lender, plunged to a £26.7m loss in the first half of the year after it suffered a steep rise in mortgage arrears and fraud.
The bank, which was forced to raise £400m from shareholders this month, said arrears on its residential mortgages were increasing and the outlook remained uncertain as the housing market continued to decline.
Chairman Rod Kent said residential mortgages, not the buy-to-let loans that made up 50% of its loan book, gave most cause for concern.
Mortgage fraud increased dramatically over the period and an £18m provision was needed to cover liabilities, pushing the lender's credit impairment charges for the six months up to £74.6m from £5.3m in the same period last year.
The company said the jump in fraud was in line with industry trends and the lender was not being targeted any more than its rivals.
Kent said most of the scams uncovered in the last six months related to the activities of mortgage professionals and had come to light as a result of falling house prices. He said about half of the cases under investigation involved estate agents, surveyors and other professionals, sometimes in league with buyers, artificially inflating the price of homes and thus agents' fees. The alleged culprits were being pursued by the police and the regulator.
Finance director Chris Wilford said the bank may recover some of the losses from the professional indemnity insurers used by the fraudsters, but he had "prudently" written off the entire deficit.
Kent said that though the lender had reported a loss of £26.7m, against a profit of £180.4m last year, underlying profit was £70.2m and showed that B&B remained a robust business. The £400m rights issue also left the bank as one of Britain's better capitalised lenders, he added.
Alex Potter, an analyst with brokers Collins Stewart, described the results as "appalling" and advised investors to steer clear of the bank. "Guidance is for margins to continue falling and arrears to continue rising. Earnings outlook is therefore very weak. The margin issue is the lack of ability to write new business currently available at higher margins, at least in part due to funding constraints."
Kent conceded the results were "disappointing" but argued that all banks were constrained by the credit squeeze.
"The board's priority has been to ensure that we can continue to fund our business safely and we have achieved this."
B&B said it was seeking to renegotiate a deal with GMAC-RFC that has left it with a book of loans described by many analysts as disastrous. B&B said arrears on the GMAC loans, many of which were self-certified by customers, were higher than on its own mortgages.