Two years ago people queued to take their money out
The nationalised Northern Rock bank has reported an upsurge in potential mortgage customers.
The number of new mortgage applications rose by 70% between February and March.
The bank said its deals had become more competitive, even before it embarks on its plan to lend an extra £14bn in the next two years.
But the proportion of borrowers more than three months in arrears has risen again, up from 2.92% in December to 3.67% at the end of March.
Despite this, the bank said there were "tentative" signs that arrears among its borrowers were now starting to improve.
It said its extra efforts to counsel customers in financial trouble had led to "some signs of improvement" in the number with arrears of less than three months.
In March the Northern Rock reported a loss of £1.4bn for 2008, mainly as a result of setting aside money to cover bad debts among customers who were in arrears or who had been repossessed.
The bank has now repeated its earlier warning that continued provisions for these problems would mean another substantial loss this year as well.
"Conditions in the mortgage and housing markets remain difficult, reflecting the downturn in the broader economy," the bank said in a trading update for investors.
Last year the bank repossessed about 4,000 homes, about 10% of all the repossessions in the UK.
At the behest of the government, Northern Rock plans to increase its lending.
Until recently it had concentrated on encouraging its customers to redeem their mortgages and move elsewhere, so it could use the money to repay the government for its bail out of the bank in 2007.
The Rock said its new loans are currently worth, on average, just 48% of the value of the properties being bought, and that its new lending programme would be equally conservative.
"All mortgage lending will be responsible, with affordability for customers remaining a key consideration," said the bank.
"All loans will be carefully underwritten by the company, on commercial terms and in taxpayers' best interests," it added.
The government loan continues to be paid off, albeit at a deliberately slower pace then before, and dropped from £15.6bn at the end of 2008 to £14.6bn at the end of March.
Even so, the Rock's previous policy of lending up to 125% of the value of a home has left it with a huge problem.
A recent report from the National Audit Office pointed out that by the end of December 2008, 33% of all its mortgages had fallen into negative equity - up from just 0.5% a year earlier.
It calculated that half of Northern Rock's mortgage loans would be in negative equity if house prices fell by 10% this year.
This exposes it to considerable further losses if those borrowers subsequently default and the bank has to repossess and then sell their homes to recoup its money.