Nationalised bank Northern Rock has posted a pre-tax loss of £724m for the first six months of the year.
The Newcastle-based firm said it incurred an impairment charge on its loans of £602m and expected that figure to be similar in the second half.
The bank, which was taken into public ownership in February 2008, also warned that it would lend less in 2009 than it had previously forecast.
Mortgages that have fallen into arrears by more than three months rose to 3.92%, up from 2.92% at the end of 2009.
The bank revealed that 6.4% of Together mortgages - the 125% loan-to-value product now withdrawn - are more than three months in arrears, up from 2.14% a year ago.
Almost 40% of homeowners who took out a Together mortgage now find themselves in negative equity.
The lender said the number of properties repossessed as of June 30 was 2,522, compared with 3,620 at the end of 2008.
Northern Rock now owes the Government £10.9bn after paying back its rescue loan with mortgage redemptions as it encouraged borrowers to seek deals elsewhere.
But this has drained money from the mortgage market and in a change of plan earlier this year the bank is now increasing lending and delaying the repayment of the loan.
The first half of 2009 was much kinder to another British bank, the Asia-focused lender Standard Chartered.
The bank beat expectations with a 10% rise in half-year profit to £1.7bn and unveiled a surprise £1bn fundraising.
Standard Chartered chief executive Peter Sands said the share placing was "absolutely not" to prepare for a major acquisition, but was to help it to "stay ahead of the game" and take advantage of opportunities as Asian economies and customers recover.
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