Mortgage bond failures

Along similar lines....I saw that more car repayments in the USA are 90 days overdue then at any time in previous history.

I didnt dig into the details and not sure if It was just a case of population increasing......or if there is real 90 day default out there....but touch point. - and yes I agree with your thoughts on how bad things are while economies are supposedly booming.

 

Mortgage delinquencies to rise moderately as house prices decline

"Ratings agency Moody's expects further house price declines will lead to a moderate increase in mortgage delinquencies in coming months.

High debt levels and the conversion of interest-only mortgages to
principal and interest mortgages will also drive up deliquencies, which ticked up slightly in the December quarter.


The delinquency rate for prime Australian residential mortgage-backed securities (RMBS) increased slightly to 1.58% in December 2018 from 1.49% in September 2018. afr

House prices in Australia declined by 6.3 per cent for the 12 months to February 2019, while Sydney and Melbourne declined by 10.4 per cent and 9.1 per cent respectively, Moody's noted.

... read more

 

"with national house prices plummeting, S&P may be compelled to look at downgrading recently issued RMBS deals in which LVRs and arrears rates are rising sharply while prepayment rates are dropping like a stone."

"Standard & Poor’s has warned about the risk of downgrading recently-issued, junior-ranking RMBS at the same time as they are signalling they may upgrade the major banks’ hybrids and subordinated bonds once Australia's economic imbalances normalise.

In one new RMBS deal launched this week, S&P cautioned that a 10 per cent drop in house prices could smash a AAA rated tranche down six notches to A- and reduce the AA rated tranche down to a junk BB+ rating even after accounting for lenders mortgage loss insurance (holding all other variables constant).

Banks could do the RBA's job on rates

 

That seems very low. Is that very low?

 

I think it's low in terms of meaning it's not a problem. I guess they are just pointing out it rose.

For context, I think U.S conventional mortgages are around 1.1%, but during GFC they got up to around 7%.

I don't know what the conventional wisdom is, in terms of what % it starts to become a problem. Way off I expect

 

this is prime RMBS not subprime,

for the context even during the GFC Australian prime RMBS had arrears of less then 0.7% at its peak.




Australian household debt now is much higher then its gfc peak,

 

Thanks

 

Suncorp mortgage bond trigger not concerning

"Corporate bond analysts have dismissed suggestions that a payment trigger on a Suncorp mortgage bond issue serves as an early warning of rising home loan stress.

That announcement sparked concerns that the up-tick in arrears could lead to a rare default of an Australian mortgage-backed security.

But investors and analysts were quick to downplay the trigger, which they said was not uncommon for mortgage bonds, particularly those that are close to being fully repaid.

At present, the highest ranking Class A1 investors have been repaid in full while $120 million is outstanding to the remaining classes of investors.

The balance represents 12 per cent of the original pool size, and once this reaches 10 per cent, Suncorp can "clean up" or repay the remaining investors.

Of the remaining loans in the pool, more than 3 per cent are more than 60 days behind in their payments.

That has triggered a clause whereby payments to various classes of bondholders switch from pro-rata to sequential – so that repayments of capital to the most senior ranking investors are prioritised.

Realm Investment House's Rob Camilleri said the "documentation has acted to delay the pay-down for junior noteholders" but did not mean there would be losses or write-downs for investors.

Mr Camilleri, an experienced mortgage bond investor, said no Australian mortgage bond has ever defaulted "and all residential mortgage-backed pools and notes have been repaid in full".

"It does not remove the risk that this may happen. However, it is extremely unlikely."

A Suncorp spokesman said that "in the case of the Apollo Series 2010-1, this is a very small number of customers going into arrears".

"As for the broader Suncorp retail portfolio, the proportion of arrears that are greater than 60 days is low at around 1.3 per cent."

 

As someone who is close to the securitisation market, I know the original media report posted here was a sensationalist media report.