The nationalised building society’s Residential Mortgage Backed Security master trust, Aire Valley has seen expected losses jump from 1.75% to 3.5%.
Moody’s has increased its expectation of losses on Northern Rock Asset Management’s master trust, Granite, from 1.75% to 2.5%.
The report states: “The risks currently observed in Granite and Aire Valley master trusts have resulted in our assumed expected losses increasing to 2.5% from 1.75% for Granite, and to 3.5% from 1.75% for Aire Valley.
“Both Granite and Aire Valley reflect continued negative performance, increased pressure on their excess spread due to both high delinquencies and slow repayment of the stepped up notes, and higher sensitivity of these trusts to a deterioration in economic conditions or an increase in interest rates.
“All of the master trusts are currently performing within their updated assumptions.”
Current 90+ day arrears are 3.80% in Aire Valley – 5.61% as of July 2009 – and 5.76% in Granite – 4.67% as of July 2009 – significantly above the master trust average of 1.69%.
Bank of Scotland’s master trust, Pendeford, saw its losses increase to 2% due to its adverse characteristics and high susceptibility to unemployment and interest-rate increases.
And the credit rating agency warned that the high level of buy-to-let and self-certified loans means Pendeford could be open to the same risks as Aire Valley.
Standard Life’s master trust, Lothian, saw expected losses increase to 0.8% from 0.6% to align it with the expected losses it assumes for other solidly-performing trusts, such as Fosse and Gracechurch.
Moody’s says this increase was mainly due to the continued weakness in the economic environment, slow expected recovery, and the exposure of the UK prime mortgage sector to the risk of interest-rate increases.