Australia: RMBS Defies Trendsetting

Moody’s Investors Service just released a report proffering a mixed bag of performance for Australian nonconforming residential mortgage-backed securities (RMBS). These type of assets are similar to subprime in the US, with aspects such as high loan-to-value ratios and/or teaser rates. Moody’s reports overall delinquency rate easing, but then 90 days past due arrears are at a record high. Borrowers who are 30 days past due, on the other hand seem to be stabilizing, performance-wise. Australia, as with the UK, followed in the footsteps of American lending practices and are experiencing knock-on effects from the recession as a result. 90 days past due delinquencies continued to deteriorate in Q109, reaching a record high of 10.17%. Moreover, despite a reduction in the delinquencies pipeline, Moody’s does not expect the 90 days past due delinquency bucket to fall in the short term as non-conforming borrowers continue to face difficulties in the credit market, reads the report. “Ultimate losses for non-conforming RMBS transactions will be largely driven by the geographic distribution and market value of the foreclosed properties,” says Ryan Lu, Moody’s RMBS analyst in Sydney. “Looking ahead, Moody’s expects delinquency levels to remain at recent highs with significant upward pressure in the current economic environment.” In Australia, non conforming loans are typically uninsured against default. In addition to said factors, non-conforming RMBS mortgage pools may include loans provided to non-residents and borrowers with non-permanent employment or poor savings records and jumbo loans, certain low documentation (self-certified) loans, bridge finance loans and loans that are secured by higher risk properties, such as a house in the middle of the outback. However, nonconforming loans are not the only asset with strangley behaving performance. In another report, the rating agency states delinquencies of +30 days past due for prime Australian RMBS fell in Q109 from Q408, adding the decline is possibly an anomaly and delinquencies are unlikely to fall again because of a generally rising unemployment rate. “In the RMBS space, delinquencies of greater than 30 days past due fell to 1.45% in Q1 from a record high of 1.58% in Q408 to 1.45%, while +30 days past due delinquencies decreased to 1.31%,” says Arthur Karabatsos, a Moody’s senior analyst. “Meanwhile, portfolios consisting entirely of low-doc loans saw the over 30 days past due delinquencies index decrease slightly to 4.41% from 4.51% in Q408.” Write to Jacob Gaffney.