Should I Buy / Sell Shares in Northern Rock

Today saw share prices in Northern Rock fall by another 33%.
There was another record withdrawal of saving funds by nervous investors.
This withdrawal occured despite the Bank of England promising to underwrite all savings.
This guarantee from the Bank of England is 100% watertight. There is no reason why they would want to let a major UK bank go under.
Furthermore, the Bank of England promised that there emergency borrowing would be extended should Northern Rock be taken over by another bank.

Despite the high street panic the fundamentals of Northern Rock are not altogether bad. Most mortgages are pretty secure. With interest rates likely to be peaking either now or at 6% UK mortgage defaults are unlikely to increase significantly.
Northern Rock has very little exposure to the bad debts US sub prime mortgage sector. There difficulties only stem from the fact that financial institutions are much less willing to buy the bundles of mortgage lending. However, primarily the problem is one of short term cash flow problems, and not fundamental weaknesses in the business.

However, having said that the damage to the reputation of the bank will not be possible to reverse.

The most likely scenario now is that Northern Rock will get taken over by another bank. This means they can take on their mortgages and get rid of the label "Northern Rock"

Should this occur the shares start to look an attractive flutter, especially if they were to fall further this week.

What do you think? Is is worth buying shares in Northern Rock now?

• Northern Rock and the impact on the Economy
• Why is Northern rock facing problems
  

What Happens if your Mortgage lender goes Bankrupt?

What happens to a mortgage if the lender goes bankrupt and you are
paying a mortgage on that property? - Reader Question

If a building society such as, The Northern Rock, was to go bankrupt your legal requirement to pay back your mortgage remains. However, you will be paying back your mortgage to a different company. This will be whoever decides to buy the existing mortgage contracts from Northern Rock.

The mortgages of Northern Rock make an attractive purchase for other banks because they will receive your future repayments. The problem Northern Rock have is that they have a temporary shortage of funds, and customers are under no obligation to pay back extra mortgage repayments.

Therefore, you will continue to make repayments. However, it will be to a different company.

The mortgage contract will also have to be honoured by the new company. E.g. if you are on a three year fixed rate deal, this will stay exactly the same until the three year period ends.

What may change is that you will have to deal with a new mortgage company, who may offer better or worse customer service. When your fixed rate deal ends, your new company may offer different mortgage deals. However, at this stage you would be able to remortgage to another company.

In the US many sub prime mortgage dealers went bankrupt but their mortgages were sold for less than face value. This is because new buyers expect some sub prime borrowers to default.

• Why is Northern Rock experiencing problems?
• Northern Rock customer withdraw savings