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RMBS: The true meaning of true sale

The high quality of its mortgage assets might not be enough to save Northern Rock’s Granite master trust.

Securitization stalwarts
Top UK lenders in 2006 and percent of origination funded by RMBS
Bank Gross lending £bln Market share % Gross RMBS issued £bln % funded by RMBS
HBOS 73.2 21.2 19 25.9
Abbey 32.6 9.4 10.8 33.2
Northern Rock 29 8.4 27 93.1
Lloyds TSB 27.6 8 15.2 54.9
Nationwide 21.1 6.1 0 0
Source: CML, Lehman Brothers

As uncertainty as to the future of UK mortgage lender Northern Rock persists, investors in its Granite UK RMBS master trust are getting nervous. The assets backing the trust are of high quality but this is proving of little comfort to investors as they face the prospect of non-asset-related (or rather Northern Rock-itself-related) events hitting the trust.

There is a certain irony here, as the whole point of having a true sale of assets into the trust is that it is supposed to be immune to the impact of troubles at the originator. "What Northern Rock has shown is that despite a true sale of assets there remains a significant connection with the originator," complains one investor.

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