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Rising rates hurt arrears

Staff Reporter 4 minute read

By: Staff Reporter

Rising interest rates have prolonged the distress of mortgage holders, as arrears remain above average levels.

According to Standard & Poor’s latest Mortgage performance Index, arrears on residential mortgage loans underlying Australian prime residential mortgage-backed securities (RMBS) fell to 1.44 per cent in May, from 1.47 per cent in April.

Standard & Poor’s credit analyst Vera Chaplin said this figure was in stark contrast to historical trends, where arrears tend to decline as the impact of Christmas spending wears off.

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"We note that loans that are greater-than-30 days in arrears have remained at or above 1.44 per cent over the last four months, following a series of interest rate rises since October 2009."

Subprime RMBS arrears increased by 59 basis points to 11.94 per cent in May 2010, from 11.35 per cent in April 2010.

Since there has been no new issuance of subprime RMBS from December 2008, total subprime RMBS outstanding in May has fallen to below $2.8 billion, the lowest level since January 2005.

“As the outstanding balances of loans underlying subprime and nonconforming RMBS amortize, we expect higher volatility in the arrears percentages reported,” Ms Chaplin said.

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