Monday, May 12, 2008
Your tax money at risk
Northern Rock's former directors overstated the quality of its £100bn mortgage book by using "inadequate" controls that have left the taxpayer more exposed to a housing downturn than previously thought. Northern Rock had prided itself on the low level of arrears, frequently comparing itself in favourable terms with the rest of the industry. However, investigations have revealed that the bank was using "discretion" in calculating what qualified as an arrear. Standard industry policy is to declare a mortgage "in arrears" if a borrower is behind on three payments. Northern Rock was reclassifying such loans as "performing" once a borrower started making the back payments, even if they were not fully cleared.