Fitch: “Surprise Jump in Australian Mortgage Arrears; Underemployment a Threat”

From Fitch:

No surprise at all, really. S&P sees a slight fall:

 

The number of Australian housing loans in arrears declined in July for the second consecutive month for prime residential mortgage-backed securities (RMBS), as measured by Standard & Poor’s Performance Index (SPIN). The prime RMBS SPIN was 1.16% in July, down from 1.19% a month earlier. We expect arrears to trend downward during the third quarter and most of the fourth, before climbing again in December as the effects of pre-Christmas spending start to kick in. Arrears in July were up 21% year on year, but remained below their peak and decade-long average. Low-documentation loans in arrears increased to 4.34% in July from 4.23% in June. Arrears on full-documentation loans meanwhile fell to 1.12% in July from 1.15% the previous month. Full-documentation loans account for more than 98% of loans underlying prime RMBS transactions and their performance largely dictates movements in the SPIN. Nonbank financial institutions continued to have the lowest arrears across originator types, at 0.71%, followed by other banks and nonbank originators, each at 1.07%. Arrears at the major banks were at 1.08% in July. Arrears fell month on month across all originator types except for other banks, which recorded an increase to 1.07% from 1.05% in June. A significant increase in the major banks’ outstanding loan balances, which have more than doubled since late 2012, has assisted with their lower arrears profile, with arrears generally trending below 1% during the past 14 years. Nonbank originators, despite experiencing a decline in outstanding loan balances of more than 65% since 2007, meanwhile have recorded a general improvement in arrears, particularly during the past 4.5 years, with arrears declining to 1.07% in July from 2.57% in January 2012.

I expect the “surprises” to continue as the entire county ex-Sydney and Melbourne stalls and sinks.