Rising housing prices in Australia helping blunt losses on low-doc loans

It’s more opportunity for low-doc loan borrowers.

Rising house prices in Australia are seen to help mitigate losses for low-documentation or “low-doc” loans—which were underwritten based on minimal documentation on a borrower’s income.

According to Moody's Structured Thinking: Asia Pacific newsletter, even if low-doc loan borrowers come across financial problems and cannot keep paying their mortgages, higher housing prices will give them more opportunity to sell their homes at advantageous levels.

The report also noted that all Moody’s rated low-doc RMBS pools (RMBS that are backed exclusively by a pool of low-doc mortgages) originated between 2004 and 2012 constitute about 1% of Moody’s-rated RMBS.

Here's more from Moody’s Structured Thinking: Asia Pacific:

While they are a small part of the market, they are a key consideration for investors due to concerns that higher delinquencies will lead to large losses.

Moody’s current outstanding low-doc RMBS pools have a weighted average seasoning of approximately 90 months.

During this time, home prices in the capital cities of Australian states and territories increased by 38% on a weighted average basis.

The low-doc RMBS pools that we rate have origination patterns on a loan-by-loan basis similar to Australian population distribution.