Mortgage Management by Acronym

Arrangements for managing the Government’s shareholding in banks after the crash and bail outs were put in place in November 2008 by the Chancellor of the Exchequer. This note attempts to summarise the organisations involved.

UK Financial Investments Limited (UKFI) is wholly owned by the Government. UKFI manages HM Treasury’s 100% shareholding in UK Asset Resolution Limited (UKAR) and investments in Lloyds Bank and Royal Bank of Scotland.

• UKFI should ‘protect and create value for the taxpayer as shareholder with due regard to the maintenance of financial stability and to act in a way that promotes competition’.

UKAR is the holding company established on 1 October 2010 to bring together the Government-owned businesses of Bradford & Bingley plc and Northern Rock (Asset Management) plc (NRAM).

• UKAR should manage the closed mortgage books of both Bradford & Bingley and NRAM to maximise value for taxpayers.

• The Executive team of UKAR manages both organisations focusing on this common objective, whilst ensuring that both companies continue to treat customers fairly, deliver consistently high levels of service and support those customers facing financial difficulty.

• UKAR is not authorised or regulated by the Financial Services Authority.

• UKAR does not offer any new mortgages but deals with customers directly, who continue to be serviced through the subsidiary businesses of Bradford & Bingley and NRAM

How it all Arose

• Northern Rock was nationalised and taken into Government ownership in February 2008 and was then restructured into two legal entities on 28 October 2009 – Northern Rock plc and Northern Rock (Asset Management) plc (NRAM).

• NRAM retained the majority of the pre-existing mortgage book and all pre-existing unsecured loan accounts. NRAM is permanently closed to new lending, but continues to provide services to some 610,000 existing borrowers.

• On 29 September 2008, all of Bradford & Bingley’s retail branches and its savings accounts were transferred to Abbey. These were rebranded Santander in January 2010.

• The remainder of the business, including the mortgage books of Bradford & Bingley and specialist lending arm Mortgage Express, were nationalised and taken into public ownership by the Government. Bradford & Bingley is permanently closed to new lending, but continues to provide services to some 240,000 existing mortgage borrowers.

Together, the combined organisation support or are left with around 800,000 customers with £77 billion of loans, employing some 2,400 colleagues at our main sites in West Yorkshire and the North-East.

The management and control of NRAM was integrated with Bradford & Bingley under UKAR on 1 October 2010.

Where too Now

• The debts are owed to the UK government through all these companies. The government is between a rock and a hard place (sorry about the pun).
• The arrears could increase as interest rates increase and this will put pressure on repossessions. Will this be politically acceptable?
• To pre-empt problems a pilot programme of phoning mortgagees and asking about problems is being conducted.
• Warning signals of problems include missed repayments, rescheduled payment dates, cancellation of direct debit instructions, problems with other personal credit.
• Selling the debt at a discount would also be a potential political minefield. Selling blocks of debt was one of the problems causing the crash in the first place.