Standard & Poor’s lowered the rating on 78 tranches of Northern Rock's Granite RMBS following increases in arrears, repossessions and losses.

Following placement on negative watch in early September, the agency downgraded all junior Granite RMBS tranches — one notch for class Ms and Bs and three notches to non-investment grade double-B territory for the class Cs. The rating agency affirmed 90 other classes.  

Concerns over the proportion and eventual recovery value of non-performing mortgages were the key motivation for the downgrade.  

“We would note that while period losses are down 40% from three months ago, the stock of mortgages in late stage arrears remains high at 5% and the annualized repossession rate has recently risen quite sharply to 2.3% of mortgages by number,” Deutsche Bank analysts said.

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