HBOS yesterday attempted to play down the significance of a report by credit ratings agency Moody's which revealed significant mortgage arrears at one of its specialist securitisation vehicles.
The report said the Mound securitisation vehicle at HBOS's Bank of Scotland subsidiary had 4.1 per cent of its loans in serious arrears of more than 90 days.
This compared with the second-worst performer, Northern Rock's Granite vehicle, with ser
ious arrears of 1.3 per cent.
The report was widely seen in the market to have been behind a near-7 per cent fall in HBOS's shares on Thursday, although the stock largely trod water yesterday, closing down 2.5 per cent, or 7p, at 275.5p.
An HBOS spokesman said: "We are entirely comfortable with the risk-profile of the Mound securitisation.
"The loans typically have a much higher rate of return, perhaps three to four times higher, given the higher risk profile in areas like buy-to-let and self-certification. Our institutional debt investors in these vehicles understand this.
"We are losing no sleep over it. It is important to remember that HBOS has approximately 80 per cent of its mortgages in mainstream, bread-and-butter areas."
The spokesman said HBOS's average loan-to-value across its entire book was a conservative 48 per cent, while the average in the 14 mortgage securitisations studied by Moody's was 66 per cent.
Moody's found that the number of homes being repossessed had more than doubled to 0.082 per cent of home loans in the second quarter of 2008 – up sharply from 0.037 per cent in the same period last year.
One analyst commented: "I'm surprised the arrears figure at the Mound securitisation is that high. And you would not expect them to say they were uncomfortable with it even if they were.
"But on the other hand, I think it is very doubtful if the wider arrears picture at HBOS is out of sync with the general mortgage market because it is by far the biggest player, with an historic 20 per cent of that market."
Another analyst said: "It is clear that arrears are going up, and will continue to do so for some time yet.
"But HBOS's strength is that it is not overwhelmingly skewed to one area, like Bradford & Bingley is in buy-to-let. The diversity gives it strength."
It is understood that BoS was involved in the mortgage securitisation market before it merged with Halifax in 2001.
The Scottish bank is thought to have believed that it needed to get into specialist mortgage lending because it was a relatively niche player in the mainstream home loans market.
