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RMBS losses likely to be worse than expected

Securitisations from Bradford & Bingley and Northern Rock Asset Management will suffer greater losses than expected in 2010, says Moody’s Investor Services.

Expected losses for Bradford & Bingley’s residential mortgagebacked securities master trust Aire Valley have jumped from 1.75% to 3.5%.

Expected losses on Northern Rock Asset Management’s master trust Granite have increased from 1.75% to 2.5%.

In its report Assessing the Performance of UK Master Trusts in 2010 published last week, Moody’s says the trusts are vulnerable to future interest rate rises and are suffering from high delinquencies and slow repayment rates.

The Granite trust saw its 90-plus days arrears rate increase to 5.76% as of July 2010, compared with 4.67% in June 2009.

But Aire Valley reduced its 90-plus day arrears to 3.80% as of July 2010, down from 5.61% in July 2009. Both arrears rates are significantly above the master trust average of 1.69%.

Moody’s says the increase in ex-pected losses is mainly due to the continued weakness in the economy, slow recovery and exposure of the prime mortgage sector to the risk of interest rate increases.

Julian Holmes, chief operating officer at Crown Management Services, says it is seeing an increasing number of borrowers struggling to meet their monthly mortgage payments.

He says that any rises in interest rates and unemployment next year could lead to a further increase in arrears.

He adds: “We are experiencing an increase in the number of people having difficulties in the buy-to-let and owner occupier portfolios.”

The Financial Services Authority revealed last week that it will not publish the results of its investigations into the collapse of HBOS and Bradford & Bingley unless it finds any wrongdoing. The FSA says it is standard policy not to comment on firms unless there is an enforcement action.

It recently cleared the Royal Bank of Scotland of any wrongdoing after the regulator investigated its near collapse in 2008.

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