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Government failed to spot Rock arrears’ levels

MPs have accused the Government of failing to spot that Northern Rock’s arrears’ levels were understated before taking the bank into public ownership.

Speaking at a public accounts committee meeting on Monday, Conservative MP Richard Bacon said it was surprising that both the auditors of Northern Rock and private bidders for the bank had missed this fact.

Bacon said that while most lenders will only move clients out of arrears once five or six consecutive monthly payments have been received, Northern Rock did so after just three, thereby understating the level of risk in the book.

He said: “It affects the overall level of risk if a bigger proportion of the mortgage book is in arrears than you thought.”

UK Financial Investments chief executive John Kingman said it meant that Northern Rock’s arrears’ performance looked better than it really was compared with other banks, something he said the bank’s new management spotted but auditors and bidders missed.

Bacon said: “I am very surprised because presumably it is not that difficult to ask the question, what are your arrears and how do you calculate your arrears and let’s look at the record of them over the last few years.”

Committee chairman Edward Leigh said it was as though the Government had bought a house without carrying out a proper survey in its takeover of Northern Rock.

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