Keith has sent us this excellent PowerPoint presentation showing exactly how debt repackaging works. You'll need to concentrate very hard because it's highly technical. But it's well worth the effort. (You can access a full screen view by clicking on "view" under the pic and following instructions on slideshare).
PS In the comments on this post, Ginger Yellow says we've got it wrong about Granite. On the issue of whether Granite might be put into "rapid amortisation" if NR doesn't replace its redeemed mortgages, he says :
"This simply isn't true. There would be no sale of assets. All it means is that if NR's share of the trust declines below the required minimum (if for example it didn't replenish the trust) repayments on the mortgages are diverted away from NR's share so that bondholder's get all of them, until they are repaid. At that point NR has all the beneficial interest in the trust, and receives all the payments from the overcollateralisation. There are additional complications for holders of individual classes of bonds, but that's what it means for the trust as a whole. Once bondholders are paid off, NR gets the remainder. I repeat - there is no sale of assets. Check the prospectus."
We must admit we took our point from the financial press (Times Biz News), so we're digging into that prospectus as Ginger suggests (it ain't exactly bedtime reading). But it still doesn't alter the fact that for the high quality mortgages pledged as Granite collateral we taxpayers rank behind Granite bondholders.
PPS Guido has posted an update on the Crock's repossessions. The bottom line is that they are the market leader with 700 claims in February alone. You may be assured it will get a whole lot worse as the housing market crumbles.