ALLCO Finance Group's mortgage business Mobius Financial Services is at the forefront of poor credit lending problems in Australia, with Allco topping up losses from one of its securitised loan funds.
One of Mobius's mortgage-backed securities has the worst industry statistics for overdue repayments, with more than 10 per cent of its loans regarded as technically in default. In a move not reported in Allco's half-year report, Allco tipped in $4 million to prop up returns to investors from the fund because of losses for the quarter to December 31.
Allco has been keen to distance itself from widespread US subprime lending problems in which defaults among US home owners have sent shock-waves through international financial markets.
Allco has issued two statements to the exchange this month mentioning Mobius and reassuring investors it was not involved in US subprime problems. Indeed, problems of poor credit lending in Australia appear nowhere near as bad as those experienced in the US.
But Mobius's 2005 loan fund, NCM 03, with a loan balance of $307 million in April, has the unfortunate distinction of under-performing all other rated mortgage-backed securities in the Australian market in terms of loans with payments overdue.
And the problem is directly related to poor-quality lending.
On August 6 the ratings agency Standard & Poor's put two tranches of the fund on negative credit watch, saying that 21 per cent of loans were 30 days past due repayment dates and 16 per cent of loans were 90 days past due repayment dates. Standard & Poor's assumes this last category have defaulted on their loans.
The founder of Allco Finance, David Coe, with a personal fortune estimated at $380 million by BRW, is on the Mobius board.
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