U.K.’s 2nd Mortgage Lender Northern Rock on the rocks?

A surprise decision hit taxpayers in the U.K. as the government decided to purchase the struggling mortgage lender Northern Rock PLC. Northern Rock grew quickly into one of the largest mortgage lenders in the U.K. by relying on securitization; however, that source of financing dried up when the U.S. subprime crisis hit Europe. Northern Rock is still on the market as the government continue to fund and operate the company’s finances.  According to MarketWatch:

                The British government, including Chancellor Darling, had been in talks with potential bidders for Northern Rock, including a consortium led by Virgin Group Ltd., private-equity group Olivant Advisers Ltd. and Northern Rock’s board. But those offers stalled last month because of uncertainty over financing.

“In current market conditions, we do not believe that they deliver sufficient value for money for the taxpayer,” Darling said in a statement on Sunday. “Under public ownership the Government will secure the entire proceeds from the future sale of the business in return for bearing the risks in this period of market uncertainty.”

 Customers of Northern Rock have been assured that their savings and shares within the company are secure and protected by the lender arrangements. The U.K. government said it tried to find a private-sector solution to Northern Rock’s problems, but the offers it got left taxpayers too exposed and didn’t provide a big enough share of any future returns, Darling explained on Sunday. Luckily, the government’s move to nationalize Northern Rock will give taxpayers a chance to benefit more from the gains if Northern Rock is sold in the future in return for bearing all the risks in the current market uncertainty.  The resulting effect this has on 2nd mortgage loans remains to be seen.

February 20, 2008 | Filed Under 2nd Mortgage 

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