RMBS mortgage arrears rise 25%

Just in, arrears on Australian prime residential mortgage-backed securities (RMBS) rose by 25% in the March quarter and are approaching their historical high reached in January 2009.

From The Adviser (via aushousingcrash):

Loans underlying Australian prime residential mortgage-backed securities that are greater-than-30 days in arrears jumped to 1.81 per cent in March 2011, from 1.44 per cent in December 2010.

According to a report published by Standard & Poor’s Ratings Services, this 25 per cent increase in arrears brings the level closer to the historical high of 1.84 per cent experienced in January 2009.

Subprime RMBS arrears rose by 103 basis points to 11.22 per cent during the same period.

“Arrears levels typically peak early in the year following Christmas spending before easing in March. However, two exceptions from the trend have occurred since the SPIN was recorded,” Standard & Poor’s credit analyst Vera Chaplin said.

“With arrears at 1.81 per cent, we are observing the rising trend repeated in March 2011, but at a higher starting level than in March 2008. The disruption to borrowers’ debt serviceability caused by the extreme flood and cyclone events, combined with higher cost of living and mortgage rates, have contributed to elevated arrears in Q1 2011. And with interest rates expected to remain at current levels or higher, we believe arrears could surpass the current peak, until a subsequent boost in economic activity occurs as the repair and replacement of damaged assets gets underway.”

Unconventional Economist


  1. The_Mainlander

    More debt to the fire this is starting to look like a perfect storm brewing and grey swans on the way!

  2. The_Mainlander

    More debt to the fire this is starting to look like a perfect storm brewing and grey swans on the way!


    • Gee, I dont know aushousingcrash. Sure, there hasnt been any rescue yet, but do you really believe our politicians will stand by while great swathes of the australian electorate get fried by falling house prices?

      I’d like to think they’d leave it alone, but we’re so all-in on housing as a country I cant imagine an absence of policy response.

        • dont underestimate the comrads.
          ive heard these people, some beleive people should get free houses, LOL

      • The consensus thinking is that the RBA will drop rates by 300-400 bps, thus providing cheaper credit for homebuyers from the “expensive” rates we currently have (case in point and never discussed: the current 7% mortgage rate has the same after tax disposable income effect of the 17% mortgage rates of the early 1990’s….)

        Because that policy hasn’t worked in well, Japan, EU, US, UK after a housing bust, doesn’t mean it can’t work here…….since we are “different”.

        A variation on the $900 per person stimulus cheques and a variation of the FHBG is also to be considered….

        • Hi

          I’m really ineterested in an analysis and discussion around the point that Prince makes that 7% mortgage rate today is the same as 17% mortgage rate in the 1980s. I can see that being the case from an after-tax income, presumably because loan balances have increased so much. Would you guys do a post on tis please?


          • This is probably the most annoying thing I come up against being a 25yr olf possible FHB
            “But we had 17% interest rates”.

            Yeah and loans that were less than 3 times annual income!!!

            I have done the maths so many times for them to show how much harder it is to pay such a massive loan of at even moderate interest rates.

            If loans get back to nudging 10% like they were pre GFC we’re in for one almighty crash!

            …oh yeah and gues what..it won’t be the home owners fault no personal responsibility there…no one told me rates go up or prices come down oh poor me.

            I CAN’T WAIT (half anticipation half pure terror)

          • I’ve gotta agree with Sal here, I’m only 23 and I’m not really looking to buy property anyway but it pains me seeing my peers falling into the trap.

            While I want a market correction to hopefully shift bank sentiment away from the housing bubble machine and into more local business investment I don’t really like seeing my peers get shafted either.

            What will a housing correction mean for the Aussie economy at large and will it do anything to increase bank investing in more productive industries?

    • Mind you, AOFM still has ~$8 billion of our cash to buy out those sub-prime RMBS – our own mini version of the TARP (Troubled Asset Relief Program).

  3. Torchwood1979

    Question for the data nitpickers here. Is there any data which suggests that this trend could reverse, or at least slow in the short term?

  4. …and the best is yet to come when the carbon tax kicks in. Even with all of the tax cuts etc, if any believes that electricity will only go up $180 per year or groceries will rise by $90 then you’ve been duped. Government forecasts are totally inaccurate. Thrown in an interest rate rise or two before then and we’re looking at some serious hardships.

    • Yep, anti-sprawl advocates point to a correlation between petrol price rises and mortgage defaults in California. They say that this proves that anti sprawl regulations are good, and need to be tougher to stop people putting themselves in a vulnerable position with long drives to work.

      As if the anti sprawl regulations and inflated urban land prices are not the CAUSE of people buying the only homes they CAN afford, circa 100 kms away from the real “city”.

  5. A slightly earlier report saying the same thing:


    I LOVE these bits:

    “…..Mr Whitehead said the rise in arrears was not a huge concern. “There is definitely some pain in the marketplace, but we think it is pretty well confined to the first-home-buyer segment: a lot of people were induced into the market by government grants and they have been a bit stretched since the November rate rise was magnified by the banks.

    “We’re not too worried about that, because the proportion of first-home buyers in the banks’ mortgage books is generally only around 10 per cent. We think that there could actually be further increases in the arrears rate — another rate rise or two would definitely increase this — but most of the borrowers that are or become stressed would have lenders mortgage insurance (LMI), so we don’t think the elevated mortgage stress levels are particularly material to the banks’ strong position.”


    “We estimate something like 15-18 per cent of so-called ‘arrears’ numbers are coming from two particular segments of retail borrowers: the first-home owner segment, which took out mortgages two to three years ago, and the other is the highly leveraged, high-LVR borrower, most of which has LMI. So it’s not yet a major worry for the banks,” Mr Dowling said…..”

    What I love about them, is just how similar they are to comments from Wall Street circa 2007, regarding the state of the mortgage market in the USA. Oh, it’s only a particular demographic in one or 2 States, and it’s all covered by mortgage insurance anyway……

  6. Problem with LMI is that some of the big four banks self insure LMI and keep most of the risk that is supposedly offloaded on balance sheet.

    • Exactly…..!

      The old “captain of the Titanic selling insurance” scenario.

      Lehmann Bros basically got caught with the most “toxic derivatives” because they were the LAST to tumble to it that they needed to offload them, not keep building up portfolios of them. Goldman Sachs, on the other hand, managed to back out quicker than the rest.

      I am wondering when the “last 2 weeks panic” will start in the Aussie financial instruments sector, and who will be left with the most liability in the new melting-down property market.

      But I am sympathetic with the financial sector; what are they supposed to do when urban planners kick off property price inflation? Quit the industry?

  7. Now if our opposition had half of a brain they would grill Swan over the income derived from these RMBS vs the interest paid on the government borrowing.

    Just gimme the popcorn.