The lender has now cut its obligation to buy new mortgages from another firm - and therefore has reduced its exposure to the falling property market.
Troubled mortgage lender Bradford & Bingley (B&B) received a boost today, after successfully renegotiating a deal to buy new mortgages.
In late 2006, the bank agreed with fellow lender GMAC-RFC to purchase £1.75 billion of its mortgage book. However, with repossessions on the rise in the UK, it has now been agreed that this obligation will be cut to just £750 million - leaving the lender better protected against future losses.
B&B has been hit hard by the credit crunch, with stock in the bank losing more than 90 percent of its value this year on investor fears over its ability to raise revenue and its exposure to the declining UK property market. It has lost its chief executive to illness, faced the collapse of a buyout attempt by a US private equity house and made three separate attempts at selling new shares in the bank in order to raise capital.
The bank's vulnerability has increased with recent events. Lehman Brothers' bankruptcy declaration and HBOS' takeover by Lloyds TSB - which both occurred after facing a similar loss of market confidence as that faced by B&B - have led some analysts to speculate that the lender will be the next to cease trading.
There had even been reports that the City regulator, the Financial Services Authority, was attempting to sort out a buyer for B&B - and not meeting with much success.
Therefore, the news has been warmly welcomed by B&B. "We think it is a positive development and will be welcomed by shareholders," a spokesman said.
"We are pleased to have reached this agreement which provides GMAC-RFC with certainty in this market, both by providing a secure exit of the loans it has originated and in terms of the equivalent premium that would have been paid should the agreement have run the full term," GMAC added.
