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Crunch time for sub-prime sector

Mortgages and securitisation deal withdrawn as US crisis makes impact

DB Mortgages has withdrawn its entire sub-prime mortgage range in what could be the first major sign of a credit crunch in the UK market following the deepening US sub-prime crisis.

West Bromwich Building Society has also withdrawn its latest residential mortgage securitisation deal, citing difficult market conditions.

This comes as yet another US sub-prime mortgage lender, American Home Mortgage, filed for bankruptcy protection this week. Deutsche Bank and JP Morgan have been named as the biggest creditors of AHM.

Last month saw two hedge funds run by Bear Stearns firms lose $1.5bn as a result of the problems in the US sub-prime market. US Federal Reserve chairman Ben Bernanke says US defaults could hit $100bn.

But DB Mortgages managing director Bill Dudgeon denies that the decision to withdraw its sub-prime range is due to the worsening situation in the US. He says the firm has sent an email to packagers telling them it will relaunch its sub-prime products following a repricing in the middle of August although it does not have a specific date.

The non-conforming lender is now only writing buy-to-let and near-prime mortgages. DB Mortgages pulled out of writing unlimited adverse business six weeks ago.

Edeus director of packaging Terry Pritchard says the US market has caused a massive ripple effect.

He says: “I do not think that this will necessarily be a long-term thing. I do not think that DB Mortgages are in a problem but it is just that market conditions have driven them to this.”

A West Bromwich spokesman says the firm will look at relaunching the postponed Hawthorn Finance Limited buy-to-let RMBS new issue when market conditions improve.

John Charcol senior technical manager Ray Boulger says the US market is definitely having an increasing impact on funding in the UK.

He says: “It has made investors much more nervous and they are now spending much more time analysing what is in the portfolio. There is no doubt that any lender who relies on securitisation is going to find margins pressed even more tightly or they will start to price products more expensively. There is no way that lenders such as Edeus and GMAC will not be affected by this.”

GMAC-RFC has confirmed it has closed its specialist sub-prime direct-to-consumer arm, National Guarantee, to new business.

A spokeswoman says: “National Guarantee represented a very small strategic investment for GMAC-RFC. Like many business to consumer lending models, Nat-ional Guarantee was finding it difficult to generate leads cost-effectively in volume to make the business viable and profitable.”


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