Powered by MOMENTUM MEDIA
Powered by MOMENTUM MEDIA
subscribe to our newsletter

Mortgage bonds safe from property downturn: S&P

A 20 per cent drop in property values would only affect a small portion of AAA prime residential mortgage-backed securities (RMBS), according to Standard & Poor’s.

Against a backdrop of increasing household debt and a prolonged period of low interest rates, the credit ratings agency said there is growing concern over households’ vulnerability to a decline in property prices.

“Falling property prices increase financial losses for borrowers in financial difficulty and are a key consideration for Australian prime RMBS,” it said.

Advertisement
Advertisement

S&P said subordinated classes of notes in RMBS that rely on lender's mortgage insurance (LMI) and excess spread to cover losses would be more sensitive to price movements if LMI providers were to simultaneously increase claims adjustments.

“We have observed that most Australian lenders have aligned their practices closely to the requirements of LMI providers, and promptly adjust their practices when they uncover gaps,” it said.

“As a result, we expect incidences of claims denials to remain negligible and increases in claims adjustments to be contained.

“The loss experiences and subsequent claims adjustments in the context of RMBS have been low to date, and risk mitigants such as excess spread have been more than sufficient to cover transaction exposures to such risks.”

[Related: RMBS and ABS defaults to rise]

Mortgage bonds safe from property downturn: S&P
mortgagebusiness

Latest News

According to data analysis agency GlobalData, one in four ADIs could exit the market within the next five years, as unemployment levels rise...

The economic consequences of the coronavirus pandemic have prompted more non-bank lenders to make changes to their credit policies, which in...

LaTrobe Financial has announced it anticipates a “strong and sharp” rebound for the housing market, as well as for employment conditions...

FROM THE WEB
podcast

LATEST PODCAST: The rush to save small businesses

Do you think Australia will move to quantitative easing this year?

Why we’ll keep delivering for our communities in the face of COVID-19

alex

As Australia tries to keep pace with a rapidly changing business and social landscape in the wake of COVID-19, Momentum Media is leading the way delivering essential content to our communities, writes Alex Whitlock, director of Mortgage Business.

Read more

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.