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Friday, 30-Aug-2013 10:12 Email | Share | Bookmark
Low-doc loan market too juicy for the big banks

Aussie low doc loan defaults at record levels

Because low-doc loans are growing by 15 per cent a year and are typically more profitable than normal loans. Macquarie Research estimates the market is worth up to $50 billion, or about 8 to 12 per cent of Australia's mortgage market. That's hard to ignore when the home loan market is slowing, business lending is becoming more competitive and banks are looking to diversify their earnings streams. Research shows a high number of self-employed borrowers live in the wealthier suburbs of Sydney and Melbourne." This week, National Australia Bank said it would start selling low-doc loans through its branches, after a stint selling them through its broking channel, HomeSide. Westpac is now pricing its low-doc loan products more competitively, and the regional banks are already there. Up to 30 per cent of Adelaide Bank's home loans are low-doc; Suncorp's is more than 10 per cent; while St George Bank's is less than 5 per cent. The majors are all at or less than 1 per cent. Macquarie Research estimates that NAB's entry into the low-doc market could deliver it additional profits of $37.5 million a year by 2007. <br>For the original version including any supplementary images or video, visit

But Moody's Investors Service noted that the overall level of defaults and personal bankruptcy was still relatively low, and that Australia's non-conforming loan sector does not resemble the troubled US sub-prime sector. Moody's online found that during the second quarter of calendar 2007, average non-conforming residential mortgage backed security delinquencies greater than 90 days past due rose to about 6.5 per cent, from 5.97 per cent in the 2006 first half and 4.63 in 2005. "Delinquency rates have trended upwards for the past 18 months as a result of rising interest rates, riskier trends in mortgage origination, and high levels of household indebtedness," Moody's analyst Ilya Serov said. She said the impact of a 25 basis point rise in the official cash rate to 6.5 per cent in August by the Reserve Bank of Australia was yet to play out. "There is a natural lag between rate rises and changes in borrower behaviour and, as such, we expect the negative performance trend to continue," Ms Serov said. However, she said record low unemployment was keeping overall delinquencies at historical lows. "Moreover, Moody's considers that despite some deterioration in performance, the Australian non-conforming sector remains distinct from the US sub-prime mortgage market," Ms Serov said. "While non-conforming loans are the nearest thing in Australia to sub-prime loans, it is evident that Australian borrowers are not experiencing the stress seen in the US." AAP <br>For the original version including any supplementary images or video, visit

Low taxpayer risk with low-doc loans

"Can't claim it is risk free, but we claim our approach minimises the exposure to taxpayer," Australian Office of Financial Management (AOFM) chief executive Rob Nicholl told a parliamentary committee in Canberra on Friday. Mr Nicholl said the AOFM had no sub-prime loans among the mortgages underpinning the residential mortgage-backed securities (RMBS) in its portfolios. The parliamentary inquiry was examining the Australian banking sector in the aftermath of the global financial crisis. The collapse of the US sub-prime mortgage market in 2007 was the precursor to the global financial crisis. Mr Nicholls said the AOFM`s mortgages with at least 30-day arrears were just 1.1 per cent of its portfolio. He said this was less than that for full document and broader prime loans. <br>For the original version including any supplementary images or video, visit

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