Big banks arrears rise against the trend

Most lenders appear to be getting their home loan arrears under control, with the exception of major banks.

Monthly data on arrears from Standard & Poor's shows that home loan arrears remain broadly steady across the mortgage sector, with 1.15 per cent of all loans 30 days or more overdue at July 2007. Arrears have consolidated around this level, and down by about 15 basis points from their Easter peak.

As this data is a couple of months old the S&P series thus misses the impact of the August rise in interest rates (thanks to the Reserve Bank) and the September rise in rates (thanks to the dislocation in global credit markets).

On the cusp of these events most categories of lenders managed to report slightly lower arrears in July than June. This included loans funded by non-bank originators where the most obvious arrears problems exist (and where arrears are 2.35 per cent, down from 2.55 per cent in May).

For major banks, though, arrears are on the rise. Arrears of 30 days or more increased to 0.73 per cent in July 2007 from 0.56 per cent in June, with almost all this rise in the 30 to 60 day range.

This rise in arrears for major banks may not mean much, though. Securitised loans from major banks (and thus subject to monitoring by S&P) amount to $29 billion, and represent only five per cent of lending by major banks.