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Worsening picture for loan arrears revealed

by Staff Reporter7 minute read
The Adviser

Prime mortgage arrears rose by four basis points to 1.28 per cent in February, according to Standard & Poor’s Rating Services.

While Standard & Poor’s credit analyst Vera Chaplin said a small rise in arrears following Christmas was common, official rate rises in February and March combined with lenders’ individual rate rises should see arrears continue to increase.

Ms Chaplin said it was likely that more borrowers were behind on repayments than showed up in Standard & Poor’s index on mortgage arrears, called SPIN.

Borrowers that were ahead of their scheduled balance would not show up as being in arrears until their balance fell behind the scheduled balance, she said.

“Given the low interest rates and positive economic fundamentals of the past few years, some borrowers will be significantly ahead of their scheduled balance,” Ms Chaplin said.

“We therefore believe that the SPIN may lag the actual level of mortgage stress in Australian RMBS transactions.”

Published: 28-05-08

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