Friday, 13 November 2015

TSB cherry picks Northern Rock mortgages

Who are the 34,000 mortgage borrowers who are being moved from Northern Rock to TSB via Cerberus, a US investment firm?

Well we know some of them had the Together mortgage, the Northern Rock product offered just before the financial crisis, which allowed people to borrow 125% of the value of the home they were buying.

Many Together borrowers got into serious trouble, couldn't afford the payments and ended up paying what they thought were very high rates to the rescued rump of Northern Rock.

But we also know that TSB calls the group which they have taken on "real people in their homes who have been managing their mortgages well, with good performing, seasoned loans".

It seems as though TSB managers were able to choose which loans they wanted. I've been told that they:

"Were able to define the parameters for our risk appetite and characteristics of the loans we would be acquiring as part of structuring the transaction.

"The customers were then randomly selected within this....we are comfortable with the risk profile of the portfolio."

To some this will sound like cherry picking.

And, of course, if the government - and in turn Cerberus - want to sell things out of the Northern Rock portfolio, they have to offer items which investors want to buy.

The average interest rate being paid by the 34,000 is 4.49%, well above the typical rate for mortgage borrowers and  potentially a nice earner for TSB.

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