Moody’s has warned investors that securities backed by mortgages will come under greater stress this year amid “less favourable” conditions in the housing market, with the pain being felt most keenly in home loans sold by non-banks.

As the government explores ways to improve housing affordability, Moody’s forecast delinquency rates for “prime” residential mortgage-backed securities would “continue to rise moderately” this year.

In the fourth quarter of last year, 30-plus day delinquencies on prime RMBS — securities considered the safest for investors to buy — deteriorated to 1.57 per cent from 1.5 per cent at the end of September, the ratings agency said.

“Weaker economic conditions in states reliant on the mining industry, rising underemployment, weak wage growth and less favourable housing market conditions will drive delinquencies higher,” said Moody’s senior analyst Alena Chen. “Nevertheless, losses will remain low, because of the build-up in home equity and deleveraging.”

While noting higher delinquencies were common at the end of the year during the holiday season, Moody’s said delinquency rates rose for all prime RMBS issuers, including major banks, regional banks, non-banks and other authorised deposit-taking institutions.

source: The Australian