Rmbs

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<p>The performance of Australian residential mortgage-backed securities (RMBS) will weaken moderately in 2020, following some improvement in Q3 2019, but delinquencies will remain low overall, according to a new report from Moody's Investors Service.</p>
<p>Their report found tat Australia's muted economic environment, record levels of household debt and the conversion of interest-only mortgages into principal and interest loans will lead to a moderate increase in RMBS delinquency rates in 2020. However, mortgage borrowers are seeing some relief in the form of low interest rates and rising house prices, which should constrain the degree of deterioration.</p>
<p>The 30+ day delinquency rate for prime Australian RMBS decreased to 1.57% in September 2019 from 1.67% in June 2019.</p>
<p>Moody's has lowered its growth forecast for the Australian economy over recent months and now expects real GDP growth of 2.2% for 2020, down from an earlier forecast of 2.5%.</p>
<p>The forecast for 2020 is higher than the 2.0% recorded in 2019, but down considerably from 2.7% in 2018.</p>
<p>Alena Chen, Vice President, Moody’s said, in this economic environment, expect mortgage delinquencies to increase moderately, particularly given that high household debt - which amounts to almost 200% of annual gross disposable income - will leave households vulnerable to economic and housing market shocks."</p>
<p>"However, we expect most mortgage borrowers will be able to continue meeting mortgage repayments at Moody's forecast level of economic growth and unemployment, which means delinquencies will remain low overall," she stated.</p>
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j.ballantyne1990-6AQqhLzZaK

Australian RMBS will weaken moderately in 2020: Moody’s Investors Service

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<p>Australian RMBS delinquency rates, which rose slightly over the three months ended 31 March 2019, will continue to increase over coming quarters, according to the latest report from Moody's Analytics.</p>
<p>They believed arrears will rise because of high debt levels, the conversion of a large number of interest-only mortgages to principal and interest loans and declining house prices.</p>
<p>They suggested however that delinquency rates will only increase moderately, given stable GDP growth, low unemployment and recent interest rate cuts.</p>
<p>The 30+ day delinquency rate for prime Australian RMBS was 1.58% in March 2019, compared with 1.54% in December 2018 and 1.48% in March 2018.</p>
<p>For prime RMBS issued by major banks, the 30+ day delinquency rate was 1.75% in March 2019 compared with 1.72% in December 2018.</p>
<p>For regional banks, the delinquency rate was 1.65% in March 2019, unchanged from December 2018, while for prime RMBS issued by other authorised deposit-taking institutions, the delinquency rate was 0.54% in March 2019, compared with 0.50% in December 2018.</p>
<p>The 30+ day delinquency rate for non-conforming RMBS was 3.75% in March 2019, up from 3.23% in December 2018 and 3.05% in March 2018.</p>
<p>Alena Chen, Vice President of Moody’s said, "over coming quarters, we expect Australia's record-high household debt, which amounts to almost 200% of annual gross disposable income, will contribute to a moderate increase in delinquencies."</p>
<p>"Meanwhile, a large number of interest-only mortgages are due to convert to principal and interest loans by the end of 2020, which will cause some delinquencies over this period. Banks originated a significant volume of interest-only loans in 2014 and 2015," she said,</p>
<p>The five year interest-only period for these mortgages will end in 2019 and 2020.</p>
<p>When interest-only loans convert to principal and interest, borrowers have to make higher monthly repayments, which can lead to delinquencies.</p>
<p>Commonwealth Bank saw a rise in arrears in their <a href="https://www.urban.com.au/news/98512-cba-arrears-rise-but-home-loan-book-continues-to-grow-slowly" target="_blank">March quarter results</a>.</p>
<p>Banks have already started trying to limit a large impact of moving mortgage holders from interest only to P&amp;I.</p>
<p>This time last year ANZ had 26 percent of their loan book made up of IO loans. They <a href="https://www.urban.com.au/expert-insights/finance/98053-anz-s-home-loan-portfolio-shows-big-drop-in-interest-only-loan-borrowers" target="_blank">reduced that number to 18%</a> as of May.</p>
<p>NAB have an unhealthier <a href="https://www.urban.com.au/news/98117-nab-housing-lending-revenue-continues-to-drop-and-shareholders-pay-the-price" target="_blank">26% of their loan book</a> given to interest-only loans.</p>
<p>Chen said Moody's expect house price declines to lead to a moderate increase in mortgage delinquencies over coming quarters."</p>
<p>"House prices in Australia declined by an average of 7.3% in the 12 months to 30 May 2019, while in Sydney and Melbourne, prices declined by an average of 10.7% and 9.9% respectively."</p>
<p>"We expect prices to continue to decline moderately over the remainder of 2019." she said.</p>
<p>Mortgage delinquencies will only increase moderately, while defaults and losses will remain low, given that continued GDP growth, low unemployment and recent interest rate cuts will support borrowers' ability to meet their mortgage repayments.</p>
<p>Moody's Investor Service forecast's real GDP growth of around 2.5% in both 2019 and 2020.</p>
<p>Australia's unemployment rate was 5.2% in April 2019 and they expect it will remain relatively stable at 5.5% by the end of 2019 and 2020.</p>
<p>In early June, the Reserve Bank of Australia lowered the cash rate by 0.25 percentage point, which prompted most lenders to lower their floating-rate mortgage interest rates.</p>
<p>To see which banks decided to pass on the full rate cut, <a href="https://www.urban.com.au/expert-insights/finance/99726-what-are-the-latest-cuts-and-who-s-making-them" target="_blank">click here</a>.</p>
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Australian RMBS delinquency rates to keep rising: Moody's

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<p>Moody's Investors Service says that the 30-plus day delinquency rate for prime Australian residential mortgage-backed securities (RMBS) increased in the fourth quarter of 2018.</p>
<p>It tips they will likely continue to rise moderately amid declining house prices, high levels of debt, and the conversion of interest-only mortgages to principle and interest loans. </p>
<p>The 30-plus day delinquency rate for prime RMBS increased to 1.58% in December 2018 from 1.49% in September 2018.  </p>
<p>The increase was driven in part by declining house prices, with house prices in Australia declining by 6.3% for the 12 months to February 2019, and by 10.4% and 9.1% in Sydney and Melbourne.  </p>
<p>Moody's expects prices will continue to decline moderately through 2019, while record-high household debt – at 191% of annual gross disposable income – will also contribute to a moderate increase in delinquencies.  </p>
<p>"Nevertheless, we expect the increase in mortgage delinquencies to be limited, while defaults and losses will remain low, as continued GDP growth and low unemployment will continue support borrowers' ability to meet mortgage repayments," says Alena Chen, a Moody's Vice President and Senior Analyst.  </p>
<p><a href="https://www.propertyobserver.com.au/images/2019/3/22/RMBS%20.jpg" target="_blank">Click here</a> to enlarge:</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/3/22/RMBS%20.jpg" alt=""></p>
<p>Specifically, Moody's forecasts real GDP growth of around 2.5% in both 2019 and 2020, and for Australia's unemployment rate to remain relatively stable at 5.5% over the same period.  </p>
<p>"Mortgage delinquencies will likely increase over the short term in areas hit by the far north Queensland floods in February 2019, as borrowers may lose income or face costs while dealing with the aftermath of the disaster," adds Chen.  </p>
<p>However, Moody's says this is unlikely to translate into a material increase in defaults, given that insurance payouts, government assistance and financial hardship arrangements entered into with lenders will ease the burden on borrowers.</p>
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Australian RMBS delinquencies to rise as house prices fall: Moody's

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<div>Moody's Investors Service says that mortgage delinquencies will increase over the next two years.</div>
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<div>The forecasts suggests a record number of interest-only (IO) mortgages converting to principal and interest (P&amp;I) loans, will continue to the rise.</div>
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<div>When IO loans convert to P&amp;I, borrowers have to make higher monthly repayments, and this 'payment shock' can lead to mortgage delinquencies and makes IO loans riskier than P&amp;I loans. </div>
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<div>Moody's data shows that the 90 days past due delinquency rate for mortgages that have converted to P&amp;I from IO is 0.94%, double that of IO loans that have not yet converted and 0.24 percentage points higher than all securitised mortgages. </div>
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<a href="https://www.propertyobserver.com.au/images/2018/8/3/MOODY%201.jpg" target="_blank">Click here </a>to enlarge:</div>
<div><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/8/3/MOODY%201.jpg" alt=""></div>
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<div>Refinancing interest-only mortgages is also becoming more difficult, which will in itself contribute to an increase in mortgage delinquencies. </div>
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<div>Moody's conclusions are contained in its just-released report, "RMBS - Australia Mortgage delinquencies to increase as record number of IO loans to convert to P&amp;I". </div>
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<div>Banks in Australia originated a significant volume of IO loans in 2014 and 2015, which means a record number of these loans are scheduled to convert to P&amp;I over 2019 and 2020, when their five-year IO period ends. </div>
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<a href="https://www.propertyobserver.com.au/images/2018/8/3/MOODY%202.jpg" target="_blank">Click here </a>to enlarge: </div>
<div><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/8/3/MOODY%202.jpg" alt=""></div>
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<div>IO loans accounted for more than 40% of all mortgages originated by banks for much of 2014 and 2015, with this figure peaking at 46% in June 2015. </div>
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<div>At current mortgage interest rates, monthly repayments on loans that convert to P&amp;I from IO will increase by around 30%, which can lead to delinquencies. </div>
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<div>With RMBS, IO loans accounted for around 32% of all loans in such deals on average as of November 2017. However, on an individual deal basis, the share of IO loans ranges from 0% to 50%. </div>
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<a href="https://www.propertyobserver.com.au/images/2018/8/3/MOODY%203.jpg" target="_blank">Click here</a> to enlarge:</div>
<div><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/8/3/MOODY%203.jpg" alt=""></div>
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<div>"Therefore, the degree to which individual deals will be exposed to potential delinquencies as loans convert to P&amp;I from IO will depend on each deals' exposure to IO loans and their IO period maturity profile," the report noted.</div>
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