Some useful comments yesterday from former RBA governor Ian...

Some useful comments yesterday from former RBA governor Ian Macfarlane:

“When you look at the incidence of mortgage delinquencies and see what they are related to, they’re not really related to interest rates at all”.

“They’re related to unemployment. If people lose their job, then they can’t pay the mortgage. But if the interest rates go up, they tighten their belts and they continue to pay their mortgages. So that’s the reassuring part”.

While many people took the opportunity to lock in low interest rates during the pandemic with fixed rates, those on variable rates are well ahead of their repayments and have built up strong savings and buffers during the pandemic. And thankfully, given loans are assessed assuming a 300bp
higher interest rate, Australian households are well positioned to navigate their way through this tightening cycle.

And let’s not forget the jewel in Genworth’s balance sheet – the $1.57bn in unearned premium. Of this, $1.1bn relates to policies underwritten in 2020 or prior. With record house price growth in 2021, these homeowners are unlikely to ever face negative equity, so I see that $1.1bn in liability as not a liability at all, but as $2+ per share of embedded profit not currently reflected in the published NTA.