Defaults on home loans surge to new high

HOME loan defaults have hit a record high as more households crumble under financial stress and can't make their mortgage repayments.
Although the banks and lenders had forecast a rise in mortgage stress, the latest report from ratings company FitchRatings reveals a massive 30 per cent increase in some defaults, during the past three months.
Fitch, which measures the risk level of mortgage investments which have been packaged up and sold as mortgage-backed securities, says defaults of 30 days or more were now at 1.79 per cent, compared with just 1.37 per cent three months ago.
Fitch associate director James Zanesi says the 0.42 per cent increase in the March quarter statistics has pushed delinquencies in Australia to their highest level on record.
The situation for low documentation loans, which are traditionally more risky, also showed a major deterioration.

Low-doc defaults of 30 days or more were now at 6.74 per cent, topping even their peak during the global financial crisis in 2009 of 6.7 per cent.
The main reasons for the defaults was worsening family finances as households struggle to cope with a debt hangover from Christmas spending, the impact of floods and the November interest rate rise starting to take its toll, Mr Zanesi says.
"Mortgage performance was expected to worsen in the first quarter of 2011, driven mainly by the usual impact that the Christmas spending and holidays have on first quarter performance. The increase in arrears is, however, higher than expected," he says.
The arrears traditionally stablise during the next six months as households work through their debt overhang. However, Mr Zanesi says there is a danger in this cycle that the situation will not improve.
"Any further interest rate rises, as well as recent increases in the cost of living, might however, put mortgage performance under more long-term pressure."
Financial Counselling Australia chief executive Fiona Guthrie is also concerned the trend could get worse.
"The overhang from Christmas spending clearly happens each year, but we haven't seen the same spike before. Our fear is that this is not a one off spike but that the trend may continue," Ms Guthrie says.
"While the floods and interest rate rises will have played a part, a significant driver is the increasing cost of living. The things that matter most to household budgets food, electricity and transport are all increasing dramatically."
Consumer Action Law Centre chief executive Carolyn Bond says mortgage stress now goes hand in hand with large credit card and personal loan defaults and debts.
"We are now seeing mortgage stress together with credit card stress. Sometimes it's not clear which one drives the other because if you're subsidising your mortgage with credit card spending, it can delay the stress showing up," Ms Bond says.
National real estate agent LJ Hooker chief executive Janusz Hooker, however, says the Fitch analysis only covers one segment of the mortgage market.
"We are not seeing in the marketplace the same levels of arrears. Our agents are seeing that the higher interest rates are reducing the number of buyers in many places, that explains the recent reports about lower prices in some markets. They aren't seeing meaningful increases in mortgage stress at present," Mr Hooker says.

Source http://www.news.com.au