Rising wave of fraud plunges Bradford & Bingley deeper into the red

Published 15th Aug 2009

The state of the lender’s loan book was revealed as the Council of Mortgage Lenders warned the economy remained fragile


Bradford & Bingley, the nationalised mortgage lender, has laid bare the dire state of its loan book and said that a rising wave of fraud dragged it to a £160 million loss for the first half of the year.

The figures came as the Council of Mortgage Lenders gave warning that the economy remained fragile and predicted that repossessions and arrears would continue to climb this year. The CML has forecast that 65,000 people will lose their homes this year, up from 40,000 last year and just under 26,000 in 2007.

B&B, which was the UK’s largest lender to landlords before it was broken up and its mortgage book nationalised last September, said yesterday that 40 per cent of its mortgage book was in negative equity, up from 30 per cent at the end of 2008. Impairments on bad loans ballooned from £75 million last summer to £328 million. The first half pre-tax loss of £160 million was up from a loss of £27 million in the first half of 2008.

B&B has 60 per cent of its book in buy-to-let and 20 per cent in self-certified loans, sometimes called “liars’ loans” because borrowers did not have to provide proof of salary.

B&B, which flagged up a spike in fraud last year, said that the trend was rising and increased its provision by almost £100 million between January and June. That brings the total provision for fraud and professional negligence to £271 million, a figure described by an industry insider as “extraordinary”.

As well as some customers apparently lying about their income, there is evidence of cases of property valuers and solicitors falsely inflating the value of properties, B&B said. Some of the fraud-related loss may be reclaimed on insurance policies, it said.

Customers falling more than three months behind on repayments rose to 5.88 per cent of the book, from 4.6 per cent at the year-end. Richard Banks, a mortgage industry veteran who joined B&B as managing director three months ago, tried to strike an optimistic note by echoing the sentiment of Lloyds last week that the worst was over. “Arrears appeared to have peaked and started to go down modestly in the past two months,” he said.

The Government sold B&B’s £21 billion of deposits to Santander, of Spain, but could not find a buyer for its £41 billion mortgage portfolio and was forced to nationalise it.

The Government is winding down B&B’s mortgage book, which may be merged with the remaining part of Northern Rock’s mortgage book after a “good bank” is split off and sold back to the private sector.

Vince Cable, the Liberal Democrats’ Treasury spokesman, said of B&B: “The Government owns the ‘bad bank’ and it is going to be something of a challenge to avoid losses ratcheting up to taxpayers.”

Across the industry, there are fears that the drop in the number of people losing their homes in the second quarter was likely to be temporary. Mortgage lenders repossessed 11,400 homes between April and June, 10 per cent fewer than in the first three months of the year — but this was still 14 per cent more than the 10,000 homes repossessed in the second quarter last year, figures from the Council of Mortgage Lenders (CML) showed. The CML said that the drop in repossessions in the second quarter indicated that lenders were showing more forbearance with homeowners struggling to meet their monthly payments.

The number of homeowners falling behind with mortgage repayments continued to climb in the second quarter. About 270,400 borrowers had missed three or more monthly payments between April and June, up from 264,700 in the first three months of the year. Homeowners will also come under increased pressure as unemployment, already at a 14-year high of 2.4 million, continues to rise — peaking at about three million next year.

The number of possession orders issued by the courts edged down in the second quarter, figures from the Ministry of Justice showed. It said that the “pre-action protocol” introduced late last year, requiring lenders to prove that repossession is the last resort, were dampening applications from lenders.

There was a glimmer of hope for landlords, as figures from the CML showed that the pace of decline in lending in the buy-to-let sector had slowed.

Source: ' times '

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