Q2 RMBS arrears mixed

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From Moodys:

Sydney, August 31, 2012 — The prime 30-plus arrears rate remained steady in the second quarter at 1.66% in June, and unchanged from March. In addition, the rate has not moved much from the same period last year when it was at 1.67%.

While the overall index is at 1.66%, considerable variation exists within the market. Historically, major bank deals have performed better than those of non-major bank ADIs (i.e. other ADIs), which have, in turn, outperformed non-ADIs. The prime 30-plus arrears rate for the major banks is at 1.23%, other ADIs at 2.10%, and non-ADIs at 2.69%.

The 30-plus arrears rate for deals with 100% low doc loans has continued to rise and is currently at 5.72%. If this trend continues, it will reach 6% in the coming months. Borrowers in these deals are not asked or are not obliged to certify or give proof of their income in the form of an income statement. The higher delinquency of these loans can be explained by the cash flow volatility of the borrowers, who are typically self-employed. Excluding 100% low doc deals, the prime 30-plus arrears rate would have been nine basis points lower, at 1.57% in June.

Overall losses are still very low by international standards with the worst performing vintage, 2004, having incurred 28 basis points of losses to date. Further, many of these losses are covered by excess spread and lenders mortgage insurance.

The redemption rate has been around 18%-21% since mid-2011 and was at 18.75% as of June.

The non-conforming 30-plus arrears rate increased to 12.47% in June from 12.06% in March. However, this is still 59 basis points lower than at the same period last year when the 30-plus arrears rate was 13.06%.

The redemption rates for non-conforming deals have fallen over recent quarters, likely the result of limited refinancing opportunities. In June, total redemption rate for non-conforming deals was 25.20%.

Economic indicators were mixed in the second quarter of 2012.

Unemployment remained relatively constant at 5.25%, but regional variation was strong. Unemployment in Western Australia continued to fall but Tasmania and South Australia have seen rising unemployment.

Home prices ended the second quarter with a negative year-on-year change. Perth was the least affected with a decrease of 1.4%, while Melbourne and Brisbane were down 6.6% and 4.7% respectively. Sydney home prices were down 3.6% for the year.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.