Australian subprime loans in default to tune of $500m Stuart Washington August 25, 2007
ALMOST half a billion dollars in Australian subprime home loans are technically in default, the highest rate in almost seven years, the ratings agency Standard & Poor's warned yesterday.
And it flagged that even among "prime" lending, the percentage of loans technically in default is becoming a long-term issue, with little movement in the past year from historically high levels.
"Despite relatively stable economic conditions, borrowers already behind in payments are struggling to recover and with the slowdown in growth in the property market, loans with more severe arrears levels are becoming an ingrained long-term trend," an S&P analyst, Helda Chan, said yesterday.
In its June report on overdue loan repayments for $174 billion in mortgage-backed securities for which the agency provides credit ratings, S&P reported a rise in the subprime lending more than 90 days overdue on repayments. S&P regards this category of overdue repayments as loans being technically in default.
The amount of subprime lending regarded as in default has risen from 5.2 per cent of the total loan book in June last year to 7 per cent in June this year. This equates to almost $500 million in loans that S&P regards as technically in default.
Overall, subprime lending with repayments more than 30 days overdue have risen from 10.6 per cent of the total loan book to 13.7 per cent in June this year.
Subprime lending has become shorthand for what is also known as "non-conforming lending": lending to borrowers who, through poor credit records or lack of documentation, would not meet the strict criteria traditionally imposed by banks.
Subprime lending in the US has been blamed for this month's shocks to the stockmarket, as default rates have soared, lenders have been forced to close their doors and a liquidity crisis has gripped international debt markets.
But the Reserve Bank governor, Glenn Stevens, has reassured a parliamentary committee that subprime lending in Australia makes up less than 1 per cent of total mortgage lending, versus almost 15 per cent in the US.
Steve Keen, a professor of economics at the University of Western Sydney, has no doubt that difficulties in home loan repayments being felt in Sydney suburbs are being felt in the broader economy. He cites the 4 per cent rate of growth of personal debt expressed as a percentage of GDP in June - one of the highest rates of growth in recent years - as a sign that people are becoming financially stretched.
"I think what's happening is we have really reached crunch point for a lot of people and they are being forced to dip into credit cards to meet mortgage repayments," he said.
(20min delay)