The now nationalized U.K. bank Northern Rock's Granite master trust is reporting a rising trend of arrears since the end of last year - delinquencies have climbed to 1.52%, which is almost four times the level recorded a year ago. The number of properties taken into possession each month has also roughly doubled.

Monthly losses as of July 2008 were £2.9 million ($5.16 million), compared with £0.2 million a year ago, according to figures reported by Merrill Lynch. Northern Rock's Granite master trust has reported a much higher number of possessions than its peers, with a severe acceleration in the last three months.

The rapid increase of possessions has become a worry since the bank is now nationalized. Societe Generale analyst Jean-David Cirotteau said Northern Rock's riskier position in the prime lending sector does not come as a surprise. "Possessions data were already much higher than those of its peers from the outset, although the figures were small at that time," he said.

Nonetheless, the trust's seller share remains well above the minimum requirement, at 13.8% compared with 8% a year ago. The trustee report also highlighted that excess spread rose marginally to 40 basis points. Credit enhancement for the triple-Bs increased to a 2.17% level compared with the 1.65% requirement.

"With three-month-plus arrears at 1.56% and realized losses running on average at 2.5 basis points of trust size over the past year, these figures hardly represent a significant credit risk," Royal Bank of Scotland analysts said. "The arrears comparison is not helped by prepayments, which have also held up at around 40% CPR over the past few months (41.5% CPR in July) with no substitutions of new collateral since September 2007. The seller share was 13.84% compared to a minimum requirement of 8.04% at the end of the month."

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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