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According to Standard & Poor’s (S&P) Performance Index (SPIN) for prime residential mortgage-backed securities (RMBS), housing loan arrears sat at 1.16 per cent in July, down from 1.19 per cent 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,” the ratings agency said.
S&P also pointed out that although arrears in July were up 21 per cent year-on-year, they remain below their peak and decade-long average.
While low-documentation loans in arrears increased to 4.34 per cent in July from 4.23 per cent in June, arrears on full-documentation loans fell to 1.12 per cent in July from 1.15 per cent over the same period.
S&P said full-documentation loans account for more than 98 per cent of loans underlying prime RMBS transactions, and thus their performance largely dictates movements in the SPIN.
Non-bank financial institutions continue to have the lowest arrears at 0.71 per cent. Arrears at the major banks were 1.08 per cent in July.
The SPIN for nonconforming loans increased in July to 4.50 per cent from 4.46 per cent in June. However, the dollar value of the loans in arrears fell, reflecting a decline in outstanding balances month-on-month.
“Ignoring seasonal variations, nonconforming loans in arrears have declined for around four years, falling to 4.50 per cent in July from 12.6 per cent in March 2012,” S&P said.
“While low interest rates have no doubt assisted with the decline in arrears, a change in the underlying collateral quality of nonconforming transactions has also played a part.”
[Related: Regional home loan arrears outpace cities]