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Monday, 14-Oct-2013 23:54 Email | Share | Bookmark
Aussie Low Doc Loan Defaults At Record Levels

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 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 low doc loans NSW 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. The AOFM's investment in RMBS was $11.1 billion as at August 31, with the mortgage pools backing these investments being $25 billion, Mr Nicholls. Of these, less than two per cent, or just over $400 million, were low-documentation loans, a type of loan usually given to people who did not gain approval for mortgages from more traditional sources. Liberal senator David Bushby acknowledged the Labor government was right in boosting the RMBS market following the global financial crisis. <br>For the original version including any supplementary images or video, visit

The Australian Democrats 'jump the gun' on low doc loans

"In our view and on the experience of our members who in the main are mortgage brokers (and comprise about 75 per cent of all mortgage brokers) there is no evidence of this," he said. Naylor said he believes the arrears rate for low doc loans has not performed "materially differently to prime loans", albeit at a rate which is slightly higher due to the greater risk associated with the low doc loans. "Had there been massive fraud it would be reasonable to expect the arrears rate to be going through the roof, and it is not," he said. According to Collyer, of the $14 billion worth of residential mortgage backed securities (RMBS) acquired by the Government since the global financial crisis (GFC), 10 per cent of these might be low doc loans. Naylor said at their greatest penetration pre-GFC, low doc loans made up around 7 per cent of the market. By the time RMBS was being acquired, the penetration would have been "considerably less than that". "We estimate the low doc loans now are less than 2 per cent of all loans so the 10 per cent assertion cannot be even close," he said. <br>For the original version including any supplementary images or video, visit

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