Treasury under fire from the National Audit office

Grovelawn Financial News 20/03/2009

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Northern Rock take over was flawed

A report by the National Audit Office has been critical of the Treasury who it says continued to allow Northern Rock to grant 125% loan to value mortgages after it had been taken over.

The Government bailed out the lender in 2007 after which the Together mortgages, which includes money borrowed on a secure loan against the property, where still being given to borrowers. The total amount loaned through these mortgages was £800 million. The product was made unavailable in February 2008. The report also criticised the Treasury for being aware of the problems involved if they needed to deal with a banks collapse but did not act to improve them.

Opposition MP’s took the report as an opportunity to criticise the government’s handling of the situation. The Liberal Democrat’s Treasury spokesman said that Gordon Brown had his head in the sand in 2004 when he was Chancellor. He said that “This report is a damning account of the Treasury’s mismanagement of the Northern Rock crisis. The Government’s inability to stop Northern Rock issuing high risk mortgages even after the bank started receiving state aid is a total disgrace”. Philip Hammond, Conservative, said “The Government were made aware of the Treasury’s inability to handle this in 2004 but amazingly did nothing to rectify the situation – something which could have saved the tax payer a lot of hardship”.

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