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Australia Mortgage Backed Securities May Be Downgraded



February 04, 2008 – Comments (4) | RELATED TICKERS: PPMIQ.DL

Like other costal cities, Australia has a severe affordability problem.  Unlike the US they have not had their housing market decline and their mortgage backed securities haven't caused any losses... yet.

Moody's is reviewing their mortgage backed securities over the next three months. 

I know nothing of the lending standards in Australia, but I tend to think they've been loose.  I did a search and it looks like anyone can set up in the mortgage business, much like the US mortgage brokers.  Having a look and look what I found, Australia is going to have serious problems... Check out the refinancing for 105% or 106% ...

I always get distracted...  When I saw the headline about Australia I immediately went to demographia's 2008 affordability survey.  Australia is so toasted... Out of 28 markets included in the survey the average affordability is 6.3.  The US median affordability that I think is ultra serious for the US is 3.6, down from 3.7 the year before.  I figure my first entry into the housing market was when Vancouver was around 4ish and I go on because I know how much lifestyle an expensive housing market steals. 

Well, I think Australia's 6.3 affordability and loose lending standards means they are going to be so hard hit when it starts to unwind.  So, now I am curious as to how many people live in those over priced cities.

Australia's 2006 census showed 17 million citizens.  It isn't like they don't have tons of land per person.  That's about 5% of the population of the US.  Ok, so 21 million people including immigrants.  Still not a lot.

Gold Coast422,000
Sunshine Coast170,000
Wagga Wagga44,000

Essentially that survey is including most of their population.  I think the US has a lot of people living in places as expensive as what Australia looks like, but the cheapest city on the list had an affordabilty of 4.8.  It looks like this hits a much higher percent of their people. 

It wouldn't take me three months to down grade it...

4 Comments – Post Your Own

#1) On February 04, 2008 at 10:27 AM, GS751 (26.72) wrote:

Ireland is an interesting market also.

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#2) On February 04, 2008 at 10:49 AM, retailsails (98.34) wrote:

Did you actually read the article? - it had absolutely nothing to do with the actual mortgage collateral, but rather because the mortgage insurer (PMI) was put on downgrade watch - since all of those bonds are have mortgages insured by PMI they were all automatically place on watch by default.  Basically the same thing that's happening in the US because of the bond insurers...

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#3) On February 04, 2008 at 2:07 PM, dwot (29.02) wrote:

jr10022,  and your point is?  They are simply 2 years behind the US curve, only the rating agencies are looking ahead because of the disaster in the US.

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#4) On December 10, 2008 at 7:21 PM, lestat503 (< 20) wrote:

There has been no losses on the part of brokers and lenders. If I have been an australian mortgage broker, resorting to lower interest rates for home loans could be disastrous. Some banks here are too late to impose interest cut, so we just have to follow. Our home loan calculator only suggest the optimal interest based on this delayed interest cut.



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