Debelle (Guy Debelle), deputy governor of the Reserve Bank, said falling real estate prices meant many mortgages were in arrears for longer periods of time. (picture of Australian Broadcasting Corporation)
Older home loans are pushing mortgage delinquency to their highest level in about a decade, with (Reserve Bank), the reserve bank, arguing that tighter lending standards over the past few years have brought newer loans in good condition.
Speaking at a financial services conference in Sydney, Australian Federal Reserve Vice President de Bailey (Guy Debelle) said borrowers were defaulting on mortgages at their highest level in 10 years and that "some reviews are necessary," but don`t worry, according to the Australian Broadcasting Corporation. "
"the 1 percent mortgage default rate is very low by historical and international standards," he said. "during the financial crisis, the U.S. default rate peaked at about 10 percent."
"non-performing loans currently pose little risk to financial institutions. It is not surprising that unemployment is low and interest rates have been falling."
Dr de Bailey argues that one of the reasons the Fed is less worried about the rising number of loan defaults is that stricter lending standards over the past five years appear to have reduced borrowers` arrears in the near future.
"when we control the age of the loan and the economic status, we find that older groups have lower default rates," he said.
"specifically, the default rate of loans made over the past two years is nearly 40 basis points lower than those made before 2014."
Recent earnings reports from major banks show that these older mortgages show rising arrears on their books.
Banks have become more patient with arrears, Mr. de Bailey said.
As house prices have fallen in many regions over the past few years, one of the factors contributing to the increase in default rates is that banks allow borrowers to repay loans over a longer period of time rather than recover, and may sell real estate. At a loss Dr. Debelle said
"contacts with banks show that looser patience and redemption policies have also contributed to an increase in longer-term default rates," he added.
However, Dr de Bailey cited the increase in loan arrears from 0.7 per cent to 1.8 per cent in Western Australia, when the state`s economic was in the doldrums after the mining boom peaked. This example shows what may happen to Australia as a whole if the national economic weakens further.
"the experience of Western Australia provides an insight into how housing loans in the rest of the country will perform if the economic is in the doldrums," he said.
"the economic downturn is certainly not our prediction. To be more precise, the national default rate seems unlikely to rise sharply from now on."
