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Moody’s Investors Service says that the delinquencies for outstanding Australian residential mortgage bonds and asset-backed securities will increase moderately next year as housing market conditions grow less favourable.
The ratings agency said that a slight uptick in delinquencies from their current low levels will be the result of the residual effects of the downturn in the mining sector, while the credit quality of covered bonds will remain strong.
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“The balance of risks in new RMBS deals will also change, as bank-sponsored RMBS issued in 2018 will include a lower proportion of interest-only, high loan-to-value ratio (LVR) and housing investment loans, following regulatory measures to curb the origination of riskier mortgages,” Moody’s vice president and senior analyst Alena Chen said.
“However, as the regulatory measures do not apply to non-bank lenders, we expect RMBS issued by such lenders to include a higher proportion of interest-only and housing investment loans than was typically the case in the past.
“This will be partly offset by a lower proportion of alternative documentation loans and loans to borrowers with adverse credit history in the non-bank, non-conforming RMBS portfolios.
“The overall credit quality of the RMBS market will be strong, but there will be accordingly some divergence between RMBS portfolios originated by the banks and those originated by non-bank financial institutions.”
Ms Chen noted that a less favourable housing market and income dynamics could also drive up RMBS delinquencies.
However, Moody’s expects the credit quality of Australian and New Zealand covered bonds will remain strong in 2018, underpinned by the high credit quality of issuers and the strong sovereign credit quality of Australia and New Zealand.
Ms Chen said: “In addition, we expect the credit quality of mortgages in cover pools to improve in 2018 from already good levels, because of regulatory measures introduced in both Australia and New Zealand to limit the origination of riskier loans.”
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