Mortgage arrears continue upward trend

According to the Standard & Poor’s Performance Index (SPIN), 1.13 per cent of prime residential mortgage-backed securities (RMBS) were in arrears during March – up from 1.11 per cent in February.

“While a decline in outstanding loan balances during the month would have affected this movement, the dollar value of loans in arrears increased, resulting in prime arrears being up overall,” S&P noted.

The proportion of full-doc loans rose to 1.09 per cent in March from 1.07 per cent a month earlier, with some of the increase due to a decline in outstanding loan balances, according to S&P.

“The SPIN for low-documentation loans meanwhile fell 14 basis points in March to 4.41 per cent, with part of the decline reflecting a rise of around 2 per cent in outstanding loan balances,” the agency said.

“Low-doc loans represent around 1.3 per cent of total loans outstanding that underlie prime RMBS transactions – down from a peak of 13.2 per cent in January 2008.”

The proportion of non-conforming loans in arrears fell to 4.08 per cent during the month from 5.22 per cent in February, which S&P said was helped by a 28 per cent increase in outstanding loan balances during March.

Regional banks experienced the largest decline in arrears of all loan originator types – down 13 basis points to 2.02 per cent – while the major banks’ SPIN rose 7 basis points to 1.01 per cent.

“Arrears remain below their decade-long average of 1.25 per cent, and even if they do continue to rise from these low levels, we do not expect this to translate into higher defaults in the current economic climate of relatively stable employment conditions,” S&P concluded.

[Related: Firstmac completes $500m RMBS issue]