Arrears rise on sub-prime loans

Borrowers on prime home loans paid back their loans more diligently in the September 2004 quarter, but borrowers with sub-prime or non-conforming loans slipped a little deeper into arrears, the quarterly survey of mortgage-backed bonds by Standard & Poor’s shows. S&P said that its SPIN index for prime loans improved marginally to 0.69 per cent in the September 2004 quarter from 0.73 per cent in the June quarter. S&P said the improvement might have been masked by the large level of new sales of mortgage-backed bonds over the quarter, but forecast that the stable trend would continue into the fourth quarter, “notwithstanding the softer residential property prices, marginally higher interest rates, increases in low doc lending, and suggestions that lenders have relaxed their credit standards.” S&P said arrears on non-conforming and sub-prime residential loans measured under the SPIN index deteriorated marginally to 9.18 per cent in the September quarter, from 8.83 per cent in the June quarter. S&P’s SPIN index is the weighted average level of arrears of securitised home loan pools, and takes into account the proportion of loan balances in arrears by 31 days or more.