Moody's Investors Service has flagged increases in AAA mortgage default probability and house-price stress rate assumptions as part of change to its Australian RMBS ratings methodology.It also expects to modify its approach to incorporating lenders' mortgage insurance in RMBS ratings.The ratings agency issued a note yesterday saying it would outline specific proposals late next month and call for comment.The group's concern is that, while Australian residential mortgage-backed securities have performed well, household debt levels have grown substantially over the past 20 years. It is also concerned about overseas experience, which shows that housing crises can occur even when there is good prior performance.The statement said: "While we believe the probability of a severe crisis remains low, a degree of caution in analysing the future performance of Australian mortgage portfolios may be warranted."Moody's considers the possibility of major house price drops to be a material risk for the Australian market."Elevated mortgage debt levels point to vulnerability within the Australian financial system. The mortgage market's robustness to an adverse economic shock has not been tested at current levels of indebtedness, with the recent experience of other countries positing some questions in this regard," said the agency.The current average house stress rate in the Moody's methodology is 40 per cent. It is likely to implement higher market value decline assumptions.It says risk factors contributing to a housing crisis would include a sudden decline in Asia's economic performance and a reversal of Australia's terms of trade. It is also concerned about a possible dislocation resulting from structural adjustments in the economy.And it is concerned that house price appreciation over the past decade moved ahead of market fundamentals. The market may be due for a correction.But the "key concern" is household debt. Australian households are among the most leveraged in the world and "Australian borrowers' vulnerability to economic shocks is elevated and unprecedented," said the ratings agency.