Exposed – the poor quality of recent lending

An exclusive preview of the findings of a new service from Skipton Building Society subsidiary kb analytics reveals how suspect mortgage underwriting has been in recent years.

The figures show a marked propensity towards early defaults which escalated dramatically across all mortgage types from Q4 2007.

The data is based on a pool of some 350,000 loans and the data, originally pooled from a number of lenders for Basle II purposes, goes back to 2004.

The trend is manifest across all accounts but is more marked with buy-to-let and sub-prime deals.

Equally noteworthy is the attrition rate of prime loans, which shows 30% of recent loans are be-ing redeemed within 15 months. This will be an interesting statistic for investors seeking to predict their income flow from mortgage pools.

The idea of The Mortgage Investor Service, to be launched in January, is to provide data that allows holders of mortgage books to identify performance trends.

“In this sense, the new service complements the work of com-panies that conduct due diligence,” commented Tim Fletcher, sales and marketing director of Baseline Capital, who has been overseeing the development of the kb analytics project.

“The default and attrition information we can provide, together with assumptions on margin and cost, will allow estimates to be made about the net value of underlying assets.”

Every month, the Mortgage Investor service will provide graphs of default emergence and attrition data by type of loan. A quarterly commentary will also be provided, identifying trends.