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UK prime RMBS mortgage arrears on the up

Arrears in prime residential mortgage backed securities rose in the first quarter of this year with Bank of Scotland’s arrears leading the way.

According to Moody’s latest report into UK prime residential mortgage backed securities, arrears within prime securities have increased in each quarter since 2007. In Q1 2009, it found that 1.66 per cent of current balance of securitised mortgages were in arrears, up from 1.47 per cent Q4 2008 and more than double the 0.74 per cent recorded 12 months ago.

Currently, the Council of Mortgage Lenders average industry arrears rate sits at 1.53 per cent.

Bank of Scotland’s master trust, Mound, is performing worst with a 90-day plus arrears rate of 4.53 per cent. Northern Rock’s Granite is a close second, with a rate of 4.32 per cent. Moody’s described Granite’s delinquency increase as “substantial”.

The ratings agency also highlighted the acceleration in arrears on HBOS’ Pendefold master trust, which increased to 2.16 per cent in this quarter, almost doubling from 1.26 per cent in Q4 2008.

In Q1 2009, the weighted-average LTV index for the UK prime RMBS market was 68 per cent, according to Moody’s. It says the trusts with the highest weighted-average LTVs are HBOS’ Pendeford with 83 per cent and Northern Rock’s Granite, reporting 78 per cent.

Outstanding repossessions were at 0.087 per cent of all current balances in Q1 2009. Moody’s says the decrease during the quarter was primarily driven by the sharp fall in the outstanding repossessions curve for BOS’ Mound, to 0.13 per cent in Q1 2009 from 0.25 per cent in Q3 2008.

In the report, Moody’s says that the overall pattern is of a marked deterioration in the performance of several UK Prime Master Trusts. Moody’s senior associate Daron Kularatnam says: “This can partly be attributed to the slowing housing market making it more difficult for borrowers to either refinance their way out of arrears problems or sell their property.

“However, the low interest rate environment that has prevailed from the economic downturn and the method used by most lenders to report the number of months that a loan is delinquent has been a significant factor, artificially increasing the amount of serious delinquencies.”

In Q1 2009, the outstanding portfolio balance of Moody’s rated securitisations totalled £327.5bn. The majority of the loans, £234.1bn, are from master trust programmes.

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