Household debt levels in Australia, New Zealand and Korea are among the highest globally when measured as a proportion of GDP, opening up a range of risks should a correction in home prices or an increase in interest rates in these economies occur, Moody's says in a recent report. Structured finance transactions such as residential mortgage-backed securities (RMBS) and covered bonds that are backed by mortgage loans are most at risk in these circumstances.In the case of Australia in particular, Moody's report says the high level of mortgage-related household debt in the country is negative for RMBS and covered bonds.Over 70 per cent of mortgages in Australia are floating rate loans, which means home loan borrowers are sensitive to interest rate movements. Mortgage delinquencies and defaults are relatively low in the current low interest rate environment, but performance will likely deteriorate when rates rise to more normal levels.Clearly a downturn in the housing market would also be negative for mortgage performance. The level of mortgage debt in Australia has increased as a result of rapidly rising house prices starting from 2012, particularly in Sydney and Melbourne. "The housing market is now cooling and we expect this will contribute to a moderate increase in mortgage delinquencies throughout 2018," Moody's analysts write.The risks for Australian RMBS and covered bonds are exacerbated by the share of riskier housing investment and interest-only loans in the transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       Moody's says around 30 per cent of the mortgages backing the RMBS transactions and covered bonds it rates are investment or interest-only loans. A large portion of investment loans also have interest-only periods, because investors tend to take out interest-only loans for tax reasons.Nonetheless, Australian regulators have moved to address risks in the housing market; thereby mitigating the threat to RMBS and covered bonds, the ratings agency says.Similarly for New Zealand, the country's high household debt levels, in conjunction with rising house prices, are negative for covered bonds.Nevertheless, New Zealand's covered bonds demonstrate a number of features that ease the threat, including mortgage loans in cover pools that show very low loan to value (LTV) ratios.With Korea, Moody's says that high household debt levels are negative for covered bonds and credit card ABS, but mitigating factors exist.A significant proportion of household debt in Korea is in mortgage loans. The high level of mortgage debt in Korea poses a risk to the Korean covered bonds that Moody's rate.Nonetheless, the majority of loans in Korean cover pools have a fixed-rate component, and this situation mitigates the risk posed by rising interest rates. Mortgages in cover pools also show on average low LTV ratios.The level of credit card debt in Korea is relatively small and majority of the assets in the Korean credit card ABS rated by Moody's are credit purchase receivables with high payment rates, which are less risky than cash advance receivables.