Ratings downgrades among Australian prime and non-conforming residential mortgage-backed securities (RMBS) remain unlikely as collateral performs within expectations, according to Moody’s Investors Service. “Moreover, despite a long term trend of increased delinquencies, their ratings are anticipated to remain stable in the absence of mortgage insurer downgrades, while some upgrades should occur as subordination levels increase due to the typically sequential pay structures employed in Australia,” said Moody’s vice president and senior analyst Arthur Karabatsos. The relative stability of performance among Australian RMBS may have something to do with the credit quality of the underlying collateral. Prime loans representing 98% of the current outstanding as of March 2009 and loans originated by investment banks dominate the Australian RMBS market, Karabatsos said. Loans to credit-impaired borrowers account for only 0.6% of the RMBS market, on the other hand, indicating the strength of collateral performance. Moody’s noted the risk of RMBS servicer disruption due to the failure or collapse of a servicer is more likely to occur with a non-bank lender. Non-bank-originated portfolios display higher arrears due to the fact that non-banks originated loans with riskier characteristics like high loan amounts, higher LTVs and investment and low-doc loans. “Since the credit crisis, non-bank lenders have been facing difficulties accessing new funds via the term market which in itself brings into question the long term sustainability of some of these entities given high dependency on RMBS,” Moody’s said. RMBS across Europe has seen some rough patches lately, including Irish RMBS, which Standard & Poor’s recently remarked as bearing relatively few repossessions for the 3.9% delinquency rate. Write to Diana Golobay.
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