Northern Rock triples mortgage default provision

[Legal Beagles]

Banks increases charge it takes to cover bad debts from £81.2m to £239.7m

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[Amethyst]

Re: Northern Rock triples mortgage default provision

Northern Rock provided further evidence of the deteriorating housing market today by almost tripling its provision against customers defaulting on their mortgages.
The bank, which entered public ownership in February, said this morning that it increased its loan loss impairment – the charge it takes to cover bad debts – to £239.7m for 2007, from £81.2m a year earlier.
It said it had seen an increase in the number of residential customers who are in arrears with their mortgage payments, thanks to "deteriorating market conditions".
It also warned that falling house prices mean it could struggle to recover its money once it has repossessed a property from customers who default on their debt
"The reduction in house prices reported for the last quarter of 2007, together with further anticipated falls ... have resulted in an increase in expected losses to be incurred on impaired mortgage loans," it said, in its annual report.
The sharp increase in loan loss impairment helped to push the company into the red last year, with a loss of £167.7m.
At the end of 2007, Northern Rock had 2,215 repossessed properties on its books - more than three times as many as a year earlier.
The annual report also showed that the arrears rate for people holding unsecured loans from Northern Rock had increased to 1.52% at the end of 2007, from 1.02% a year ago.

[Energy jobs]

Re: Northern Rock triples mortgage default provision

When the smartest guys in the room designed their credit default swaps, they forgot to ask one thing - what if the parties on the other side of the bet don't have the money to pay up? Credit default swaps (CDS) are insurance-like contracts that are sold as protection against default on loans, but CDS are not ordinary insurance. Insurance companies are regulated by the government, with reserve requirements, statutory limits, and examiners routinely showing up to check the books to make sure the money is there to cover potential claims. CDS are private bets, and the Federal Reserve from the time of Alan Greenspan has insisted that regulators keep hands off.