S&P makes special mention of Abbey’s Holmes trust and Northern Rock’s Granite master trust, which both saw a substantial increase in total delinquencies from August to September.
Overall, prime mortgage arrears on UK RMBS are at the highest they have been for eight years. The Council of Mortgage Lenders puts the arrears rate at 1.44 per cent, but S&P says on RMBS arrears are at 3.24 per cent. Three-month delinquencies were up to 1.16 per cent.
The credit agency also revealed that repossessions on Northern Rock’s books increased “slowly but steadily over 2008” – the Granite trust’s absolute three-month delinquencies also increased by almost a half. Last month the master trust set off a non-asset trigger, which means there are not enough products going into the master trust to keep it alive.
S&P says another problem for issuers could be the lengthening of the time between repossession and eventual sale of the property. It says the average time taken from arrears to repossession in the first half of 2008 was around five months. If this increases, and the number of repossessions increases, the cash flow strain on RMBS transactions as interest is generally not received from the nonperforming assets.
It says falling house prices, coupled with struggling fire sales, could seriously affect the master trust’s future as repossessions and arrears increase.