From Moody’s:
Sydney, October 08, 2013 — Moody’s Investors Service says most Australian residential mortgage-backed security (RMBS) transactions with lenders’ mortgage insurance (LMI) insuring the mortgage loan payments are insensitive to changes in the credit quality of mortgage insurers.
“We analyzed 215 Australian RMBS notes with LMI and found that the ratings of only 11 senior and two mezzanine notes were reliant on the credit quality of mortgage insurers,” says Alena Chen, a Moody’s Assistant Vice President and Analyst.
Chen was speaking on a just-released Moody’s report titled “Australian RMBS Ratings Are Mostly Unaffected by Changes to the Credit Quality of Mortgage Insurers.”
The conclusions in the report were made after Moody’s conducted collateral and cash flow analyses on 118 Moody’s-rated term Australian RMBS transactions, based on Moody’s collateral analysis model, known as MILAN.
Moody’s report pointed out that in order to determine the sensitivity of the note ratings to the credit quality of the mortgage insurers, Moody’s compared the ratings of each note to the model-implied ratings, which do not give benefit to LMI support.
If the model-implied rating was equal to the note rating, the tranche was insensitive to changes in the credit quality of mortgage insurers.
If, on the other hand, the model-implied rating was lower than the note rating, the notes were sensitive to changes in the credit quality of mortgage insurers.
Err, well, that’s not “insensitive” is it? My running theory is that if the great Australian housing bubble ever does come a cropper this is where you’ll see the most action. In fact, I suspect that RMBS will prove so sensitive to LMI balance sheets that the insurance subsidiaries will be nationalised a’la AIG in the US in 2008. If.
