Mortgages Uncovered

Bradford & Bingley have been concentrating on untested ‘buy to let’ and self certified mortgages, and is further committed to buying many billions of pounds of the mortgages originated by GMAC, who is a US lender. The bank only revealed this June that it’s GMAC loans had performed worse than Bradford & Bingley’s own assets despite protesting that underwriting standards at the GMAC were the very same as its own.

Bradford & Bingley relies on wholesale funding for nearly half its lending, this type of funding is more expensive and scarcer, house prices are still falling and its own specialist mortgages may suffer more than the average during the down turning market.

When the rights issue is over, chairman, Rod Kent looks likely to double his efforts to find a buyer for B&B.

Alliance & Leicester have further agreed to sell out to Santander, due to being a small lender with a focus on the troubled mortgage market has ended up being exposed to some volatile sentiment. B&B is even smaller and even more exposed to this risky mortgage business.

However, with house prices falling and the economy slowing, it would be a very brave buyer who took on Bradford & Bingley’s risky assets in the near future.

Banking Analyst at Collins Stewart, Alex Potter, said that whilst B&B is only trading at half its’ book value it may not be enough to tempt a good buyer.