Bradford & Bingley

Bradford & Bingley is having to shore up its finances to the tune of £400m. A mortgage bank having actually lost money (very unusual) in the first few months of 2008. Towards the back of an 11-page document, the lender announces 'bad' debt figures. The slowdown in the economy and higher household bills, have both rapidly affected the ability of home owners to repay their mortgages and by the end of April, 2008, 8,333 of the B&B's borrowers (2.16%) of all the bank's mortgage customers were in trouble, with arrears of three months or more, or in the throes of being repossessed. That was 35% more than at the end of December 2007 when 6,170 (1.63%) of borrowers were in that position and that was then already far worse than the industry average, which had stood at just 1.1%.

This description attempts to push the entire blame squarely on the mortgagee for defaulting on loans and nothing to do with Bradford & Bingley business practices.

• In reality, isn't this just symptomatic of lenders demanding too much return? Greed distorts any outlook and pushing borrowers past the limit and over the edge just makes a bad situation much, much worse. But greed and blame redirection continue relentlessly. Bosses escape with bonus rewards and everybody else has to deal with the mess.

• The situation will always get worse as the lenders attempt to cover their errors by making the sofar 'unaffected' borrowers bail out incompetence further destroying the careful, but decreasing in size, number of well-managed individuals. The bad wrecking the good.

Back at the end of 2006 everything seemed markedly different in the mortgage lending business, so the B&B decided to expand its lending (potentially to increase its wealth) by the simple method of buying existing stocks of loans from other lenders and in December 2006 agreed to buy up to £12bn worth of mortgages, spread over the next three years, from GMAC, the finance arm of General Motors that specialised in buy-to-let mortgages, the B&B's own favourite type of loan.

Shortly afterwards, a further £2bn of loans followed from another lender (Kensington) to be spread over two years: buy-to-let mortgages, as well as "prime self-certificated" loans (ideal for self employed people or where income is paid by more irregular means e.g. bonuses). Income is confirmed without the need for independent verification. Borrowers did not have to provide much evidence of their earnings, or their ability to repay their loans, to get the mortgage in the first place, but at the time of its deal with Kensington, the B&B said it would take the loans in monthly tranches, after scrutinising them to make sure they were "in line with strict credit parameters".

The 'deal' was brokered, but the level of applied scrutiny does not now look nearly good enough and the B&B has revealed that arrears among the acquired loans, especially those from GMAC, have turned out to be far worse than expected. Of the self-certificated loans that have been bought, 4.3% are now three or more months behind with repayment. The "other" B&B category (presumably the even riskier loans) is 5.69% in arrears and constitutes 1,006 mortgages.

It would seem obvious that someone in a position to spend someone else's money has not the sense of responsibility that must go with it.

Accident or deliberate?

• The B&B says it is now going to counteract this emerging problem by reducing the number of mortgages it will buy from GMAC to the legal minimum required by its deal.

• The next few months should clear some of the haze as management movements happen: who moves where and with what severance reward.

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