What mortgage stress? – Swiss Daily


Are investors properly sniffing the growing distress in the mortgage belt, or is this just another false alarm and stocks are creating buy value in what has been a Teflon-coated sector for so long? ‘years?

With Sydney’s average stack now worth over a million dollars – with a broken drain as the only view of the water – it’s a safe bet that the next financial crisis will have something (or all) to do with the lodging.

Last week Federal Treasurer Josh Frydenberg and the powerful Council of Financial Regulators reported a crackdown on the insanity that was unfolding.

This followed warning from the International Monetary Fund that the burning housing market threatened financial stability, with the august body recommending “macroprudential” measures, such as ceilings on high debt-to-income lending and debt-to-income ratios. loan / appraisal.

The Australian Prudential Regulation Authority (APRA) responded on Wednesday by increasing the cushion rate – the assumed interest rate at which lenders must assess a borrower’s ability to pay – from 2.5% to 3%.

Take into account the pandemic blockages of the marathon and the unemployment that follows and it is no wonder that policymakers are worried.

When it comes to ASX-listed real estate lenders, there is no sense of a looming crisis, but avoiding one will require more deft credit assessment practices, such as a much closer examination. “lying loan” requests.

But it’s often OK until it isn’t.

Mortgage specialist Resimac (RMC) nearly doubled its net profit to $ 107.6 million in the 12 months to June 30, 2021, helped largely by bad debts falling to $ 2.7 million against $ 22 million previously.

Owner of Homeloans.com.au, Resimac raised a specific provision of $ 5.43 million, or 0.04% of the loan portfolio of $ 13.8 billion, against $ 6.06 million (0.05 %) one year ago.

Unsurprisingly, prime mortgages fare better than the “specialist” category (these are loans that traditional lenders won’t accept, but can still be a good risk with the right treatment).

Resimac CEO Scott McWilliam said that while there had been a slight increase in the number of tough nominations, it’s not like 12 months ago and the mood is “rational”.

In its annual figures, Liberty Financial (LFG) said customers with just $ 84 million in assets underway were subject to Covid-19 partial payment agreements, up from $ 1.133 billion in the previous June.

Home loans represent 71% of Liberty’s total loan portfolio.

Liberty’s bad and bad debt expense fell to almost nothing, thanks to the reversal of previous provisions that were not needed.

Since its IPO in May, Pepper Money (PPM) notes that a year ago, more than 12,000 customers had requested a payment break. By August last year, the number had dropped to 173 – so few that you can almost name them individually.

“It’s quite different,” says CEO Mario Rehayem.

He believes that customers are much better informed about what a refund “vacation” really means: like a normal vacation, they won’t last forever and will eventually have to be paid for.

“Before there was a rush for the phone, [with borrowers] thinking they might lose their refunds and not have to pay them back, ”he says.

It also allows more customers to have a decent savings buffer to fall back on, so that they cannot enjoy leisure activities and travel.

“Before Covid, household savings were between 2% and 2.5% (of disposable income),” says Pepper CFO Therese McGrath.

“The Australians have really got their finances under control and the rate has gone up to 20% and we are still between 11 and 13%. “

In the (first) half of June 2021, Pepper’s loan losses were 0.28% of the loan portfolio, an improvement of 9 basis points. Mortgages make up $ 11.3 billion of Pepper’s $ 14.3 billion loan portfolio – 79% – with asset financing (mostly vehicles) making up the rest.

“Historically, our loss performance has been good because of the disciplined way we issue credit,” Reyahem said.

“We have great performance, but historically we have it too. “

At the top, the Commonwealth Bank of Australia (CBA) experience mimics that of non-banks, but with even lower losses.

The only Big Four bank to have a June balance date, the nation’s largest mortgage lender reported a $ 554 million full-year credit write-down – 0.07% of the country’s $ 817 billion loan portfolio. bank – up from $ 2.518 billion previously.

Home loan arrears amounted to $ 134 million, up from $ 1.034 billion previously.

The bank’s overall provisioning for bad debts stands at $ 6.2 billion (1.63% of the portfolio) against $ 6.4 billion previously.

In its third quarter credit quality update, Westpac (WBC) – the second largest mortgage lender – reports 90-day mortgage delinquencies at 1.11% of the pound, up from 1.62% a year ago. year.

We’ll have a better idea when Westpac, ANZ Bank (ANZ) and National Australia Bank (NAB) release their full numbers for the year through September 30.

On the progress reports to date, there won’t be anything too big, hairy, or scary – or not yet anyway.

On a pessimistic note, the hefty profits on the aforementioned lenders are unlikely to be repeated if there is an explosion in defaults from such low levels.

On the bright side, lenders use data to assess claims in a more personalized way, rather than accepting or rejecting customers using cookie-cutter metrics.

Data-driven metrics should also help lenders avoid the problems of the past. Pepper, for example, is paying close attention to areas and local government industries affected by Covid and will not lend to buyers of high-rise apartments or lifestyle properties such as hobby farms.

Hopefully lenders’ high tech tools are top notch, because when (not if) interest rates rise, their stress tolerance assumptions will be strained.

Over the past month, shares of Resimac, Pepper and Liberty Financial fell 18%, 11% and 3% respectively, while the broader market lost around 4%. CBA shares actually gained 3%, although the bank is often ridiculed as the most expensive building company in the world.

It is a moot point whether investors are correctly sniffing out the growing distress in the mortgage belt, or if this is another false alarm and stocks are a value buy in what has been a sector. covered with teflon for so many years.

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