With the wholesale market still closed for much needed funding opportunities, U.K. market players remain cautious about what fallout other U.K. mortgage lenders may face. With one of the U.K.'s major player's, Northern Rock taking such a major hit from an inaccessible wholesale market, its likely that some of the smaller players could also see shares suffering.

To be sure, Paragon, who capitalizes 90% of its lending by selling mortgage-backed bonds with maturities of up to 40 years, saw shares slip by almost 10% last week, wiping GBP28 million ($40 million) off its value. The lender's stock fell 24 pence to 225p following suggestions that the U.K. lender would have to suppress new business growth if the credit markets did not loosen up by February. A statement issued by Keefe, Bruyette & Woods (KBW), a full-service investment bank that specializes exclusively in the financial services sector, said that Paragon had sufficient funding to continue its current rate of growth until February 2008. After that, Paragon would have to turn to the credit markets for cash. If wholesale lending has not returned to Paragon would have to either sell books of loans to rival lenders, or close to new business, said KBW.

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