Delinquencies among prime Australian residential mortgage-backed securities (RMBS) fell in Q209, according to a Moody’s Investors Service report Wednesday. Delinquencies of more than 30 days slipped for the second consecutive quarter despite rising unemployment, Moody’s said. Reductions in official interest rates drove the decline in the deeper delinquency bucket. Delinquencies greater than 30 days slipped to 1.32% from 1.45% in Q109 and from a record high of 1.58% in December 2008. “However, there are expectations by market participants of interest rate rises either late this year or early next year, and which could put a drag on recent improvements in arrears” within prime Australian RMBS, says a Moody’s senior analyst Arthur Karabatsos. Performance of Australian non-conforming RMBS also shows signs of stabilization, according to a separate Moody’s report Wednesday. Loans are considered non-conforming in the Australia market due to the presence of certain risk features not accepted by traditional prime lenders or mortgage insurers. “The average 90 days past due delinquency rate has retreated to approximately 9% from an historical high of 10.39% in Q109,” says Moody’s analyst and report author Ryan Lu. “However, despite the recent reduction in the delinquencies pipeline, the 90 days past due delinquency bucket will be unlikely to fall to historically low levels any time soon, as non-conforming borrowers continue to face difficulties in an uncertain economic environment.” The stabilizing Australian non-conforming RMBS performance comes at a time when UK non-conforming RMBS performance is worsening in the face of the global financial crisis, high unemployment and falling house prices. Issuance volumes within the Australia non-conforming RMBS sector is likely to remain subdued through year-end as property prices ultimately drive losses in the transactions, Moody’s says. Real estate investment in Australia is picking up, with the emergence of a new real estate investment fund this week that adheres to Shariah principles. Write to Diana Golobay.

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