Treasury slammed on N Rock

Nationalised Northern Rock lent £800 million in high-risk mortgages for six months after being placed on life-support with billions from the taxpayer. The finding came in a damning National Audit Office (NAO) report which said an under-prepared Treasury failed to properly assess risks, carry out its own due diligence, or challenge over-optimistic business plans after nationalising the lender in February 2008. Northern Rock continued to offer its infamous Together mortgage - lending borrowers up to 125 per cent of the value of their homes - from the time of its emergency support from the Bank of England in September 2007 until it was on the brink of public ownership. While the terms for the controversial loans were tightened, the product still accounts for 50 per cent of the lender's arrears and 75 per cent of repossessions. The Treasury - which until February was pursuing a private sector sale - "judged mortgage transactions were necessary to maintain the business" while a long-term solution was sought, the NAO said. Edward Leigh MP, chairman of the Public Accounts Select Committee was scathing at the Treasury's failure to clamp down on the riskier loans. Northern Rock was forced to call on emergency funding after the credit crunch shattered its business model, sparking the first bank run for almost 150 years. But after the crisis broke, just 24 staff at an over-stretched Treasury were working on the problem, the NAO said - and it employed three different team leaders to deal with the Rock between August 2007 and its nationalisation. The taxpayer footed £79 million in advisory fees on the deal, including £27 million incurred by the Treasury and £39 million spent by Northern Rock and £13 million in bidding fees paid by the lender. The report is the first in a series expected from the NAO this year over the Treasury's intervention in the financial sector.

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ITN | March 20, 2009

Tags:. .value. .paid. .edward. .homes. .private