Embattled N. Rock Pulls Out of Subprime Lending

LONDON (Reuters) - Troubled UK mortgage bank Northern Rock (NRK.L: Quote, Profile, Research), taken into public ownership last month, said on Monday it has withdrawn from Britain's near-prime and subprime mortgage sectors.

Northern Rock, the highest profile British casualty of the credit crunch, had originated the riskier mortgages for Southern Pacific Mortgage Ltd, a unit of investment bank Lehman Brothers, which then funded and administered the loans.

Northern Rock, which used its distribution channels to attract the business, did not, however, write any near-prime or sub-prime mortgages to its balance sheet.

Lehman announced in September it would trim its U.S. and UK home loan operations but continues to write subprime and near-prime loans in Britain.

Northern Rock, under troubleshooter Ron Sandler, is expected to shrink its mortgage book while boosting retail savings, aiming to revive funding while capital markets remain uncertain.

European Union rules could also force the bank to pull back from being one of the sector's most aggressive lenders.

Britain's subprime mortgage market is far smaller and far more recent than its U.S. counterpart, dating largely from the recession of the 1990s. Subprime loans accounted for around 8 percent of lending in 2006, against 20 percent of U.S. lending.

(Reporting by Clara Ferreira-Marques; Editing by David Cowell)

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