90 day plus arrears worrying

Standard & Poor's last week released its March 2009 quarter data on arrears in the mortgage pool that supports Australia's pool of mortgage-backed securities. Like Moody's and Fitch before it, S&P reported a decline in prime arrears overall at the end of March but non-conforming arrears are still trending upwards.

Each of the rating agencies attributes the decline in prime arrears to the combined impact of falling interest rates and the Australian government's cash handouts but all agree that this is unlikely to be sustained as unemployment rates rise.

In this respect, the steady rise in arrears of more than 90 days since mid-2004 is disconcerting. Once arrears get to this stage, it becomes quite difficult for borrowers to regularise their repayments.  

The picture is even grimmer in the non-conforming sector.