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Arrears start to stabilise

Staff Reporter 3 minute read

Staff Reporter

Arrears on loans underlying Residential Mortgage Backed Securities (RMBS) rose slightly in September.

According to a new report by Standard and Poor’s Ratings Services, the increase was just 0.1 per cent, indicating that arrears are largely beginning to stabilise in the 1.4 to 1.5 per cent range.

But while the news was positive for prime mortgages, Standard and Poor’s credit analyst Vera Chaplin said it wasn’t so good for low doc borrowers.

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Ms Chaplin said recent statistics indicate heightened financial stress among self-employed borrowers, with low doc loan arrears increasing to 4.22 per cent from 4.00 per cent.

“We anticipate the rise in cash rate of 0.25 per cent in November and subsequent increase in mortgage rates combined with the upcoming Christmas spending may see arrears rising above the trend in the New Year,” Ms Chaplin said.

Subprime RMBS arrears fell by 24 basis points to 11.90 per cent in September 2010, compared to August.

Given there has been no new issuance of subprime RMBS since December 2008, total subprime RMBS outstanding in September fell to below A$2.4 billion, the lowest level since May 2004.

“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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