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Securitisation hopes crumble with Granite

This week Northern Rock’s main securitisation master trust Granite had a ‘non-asset trigger’, meaning no more mortgages will go into the trust and Northern Rock will no longer receive money from it until all bondholders are repaid.

Granite, worth £35.5bn, has literally been the rock of the mortgage securitisation market over recent years, fuelling the bank’s meteoric rise.

But now it seems there is little interest in keep these type of vehicles running.

The Government has had the power to keep Granite going from the outset – it could have kept pumping fresh mortgages into the trust as the old ones expire, but it has not chosen to do that.

It is therefore a fair assumption that the next master trust that maybe allowed to run off will be Bradford & Bingley’s Aire Valley. B&B seems to be going down the same deleveraging path.

This all hints at what will and will not appear in the Crosby report. If Crosby is to recommend holding up the securitisation market, surely the Government would have made sure its own master trusts are fed and watered?

These huge trusts were the basis for the likes of Alliance & Leicester, Barclays, HBOS and Abbey to all move into high-end sub prime and specialist mortgages so without them can we honestly expect a return to specialist lending?

Probably not, at least in the short term. The industry expects little or nothing to come from Sir James Crosby’s report. His initial hopeful pre-amble was a life time ago, and now it seems all his concerns and worries about the mortgage funding industry are irrelevant after the bailouts, bankruptcies and further nationalisations.

It would now be political suicide for the politicians to not only use taxpayers’ money to save the banks, but then give them back the ability to lend risky loans again.

Even if there is a sound argument for mortgage backed securities to be given a transfusion in an attempt to create mortgages for the millions of people unable or unwilling to take the slim pickings left on the sourcing systems, it is unlikely to happen in this new world.

So we will begin to say goodbye to Granite, and with it any hope that the way banks and building societies borrowed and lent over the last decade will return in the same way. The world wants “sensible money” as David Cameron calls it, and it seems there is no place for a hulking master trust in that brave new world.


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