Crock Exposure

The cost of the Northern Rock crisis has reached the equivalent of £3,500 for every taxpayer as experts warned that the nationalisation rescue of the bank was bound to fail.

Well, yes, makes a nice scare story. That\’s take the entire £110 billion at risk and divide by the number of taxpayers.

But that statement is in fact assuming that every single one of the Crock mortgages stops paying on them, there\’s no value at all in any of the properties they\’re secured on and…..well, that isn\’t the real number then, is it?

Quite what should be done next I\’m not sure. They supposedly have a decent mortgage origination department (stop sniggering at the back there) which might be worth something to someone else. Flog that off and then run it down?

But I admit I haven\’t actually thought about it very much. Anyone else got any bright ideas?

6 thoughts on “Crock Exposure”

  1. With most of the commentary and political interest now focused on the issue of legislation nationalising Northern Rock, attention has been diverted away from these startling bits of recent and important insights from the news:

    “Northern Rock set up a company to buy customers’ repossessed homes at cut price just weeks before it fell victim to the credit crunch, The Sunday Telegraph has learned.”
    http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/20/cnrockprop120.xml

    “[Northern Rock] offered mortgages of up to 125pc of the value of a home, while £6.2bn [of the bank’s assets] is in buy-to-let, a market considered so risky it has virtually shut down.”
    http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/19/cnrock619a.xml

    Judging by the figures presented there, Northern Rock has an unusually high loans-to-value ratio in its mortgages as compared with other leading mortgage lenders.

  2. Finally, it appears that Northern Rock currently has one of the highest reposssession rates in the mortgage business:

    “As the Government came to terms with the fall-out from the latest twist in the saga, ministers were also expecting an outcry over the repossession of homes from householders unable to keep up their mortgage repayments. The bank [Northern Rock] has one of the highest rates of repossessions and its nationalisation could leave the Chancellor taking the blame for hardship when householders are forced out of their properties.”
    http://www.independent.co.uk/news/uk/politics/northern-exposure-cameron-calls-for-darling-to-be-axed-after-bank-bailout-784021.html

    No wonder Professor Peter Spencer, economic adviser to the Item Club, is saying:

    “The Government is still in denial. It cannot resurrect this business. Any private buyer would have found it difficult to have run it, and it will be almost impossible for the Government to float Northern Rock as a going concern again. The securitisation markets it was reliant on are defunct, and will remain so for some time. It cannot get any kind of deposits it needs to finance its mortgage portfolio. The Government must realise the inevitability of a run-down. They are playing for time. It’s a shame because the cost of keeping it going in the meantime will be met by the taxpayer.”
    http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/19/cnrock619b.xml

  3. I’m also a little puzzled how the Rock can be offering 6.45% on savings, and mortgages at 6.29%.

    Maybe I should borrow £100,000 and pop it into the savings account. I could make £160 in a year.

  4. The Indy’s piece doesn’t tie in with the leaked NR Project Blackbird IM (illegal to link in the UK, but allegedly available via search engines) , which suggests that NR is doing better than average in terms of default rates and repossessions. I’d be more inclined to believe the IM than a random axe-grinding hack…

  5. Kay Tie – the 6.25% charged on mortgages is the “flat rate” which is below the APR (the real effective rate).

    By coincidence, I have just had my mortgage statement (not with Northern Rock) and I am paying 6.29% flat rate – which is 8% APR in my case. The APR will vary somewhat from individual to individual (due to factors like repayment term) but it will always be above the quoted “flat rate” simply because the flat rate is calculated as a % of the amount that you owe at the beginning of the year (not taking into account that fact that capital is being repaid during the year).

    The APR takes the fact that you are repaying capital into account as well as any other costs and charges.

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