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Arrears slides on RMBS

Staff Reporter 4 minute read

Arrears on residential mortgage loans underlying Australian prime residential mortgage backed securities (RMBS) have fallen to their lowest level in a year, reaching 1.32 per cent in July 2009.

According to a recent report from Standard & Poor, arrears fell from 1.44 per cent in June 2009.

“Over the last six months, arrears in loans underlying Australian RMBS have dropped significantly in each of the arrears categories: 30 to 60 days, 60 to 90 days, and greater than 90 days. We believe arrears are likely to stabilise at lower levels before the future impact of Christmas spending kicks in," Standard & Poor's credit analyst Vera Chaplin said.

Ms Chaplin said the improvement in arrears was due to a combination of strengthening property markets supporting foreclosures as well as fewer loans migrating into the greater than 90 day category.

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“Our observation suggests that with the ongoing credit rationing environment, market conditions remain challenging for borrowers who are in severe arrears, particularly for self-employed borrowers and borrowers with adverse credit histories,” she said.

“Although the economy is showing signs of improvement, we believe that key risks remain; rising unemployment levels and potential interest rates rises could reverse the current improving trend in arrears."

Arrears on low doc loans that underlie prime RMBS also experienced declines in July. The percentage of low doc loans that are in arrears greater than 90 days fell below 2.00 per cent for the first time since November 2008, to 1.98 per cent in July.

Arrears slides on RMBS
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