In a further commentary piece aimed at the Australian insto investor, Moody's Investors Service has expanded on its recent commentary regarding mortgage backed bonds in Australia and the state of play for the housing assets that provide collateral for New Zealand's RMBS notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        The rating agency said mortgage delinquencies will increase over the next two years as a record number of interest-only mortgages convert to principal and interest loans, which Moody's sees as a credit negative for Australian residential mortgage-backed securities. When IO loans convert to P&I, borrowers have to make higher monthly repayments, and this 'payment shock' can lead to mortgage delinquencies and makes IO loans riskier than P&I loans. Moody's data shows that the 90 days past due delinquency rate for mortgages that have converted to P&I from interest-only is 0.94 per cent, double that of IO loans that have not yet converted and 0.24 percentage points higher than all securitised mortgages. Refinancing interest-only mortgages is also becoming more difficult, which will in itself contribute to an increase in mortgage delinquencies.Banks in Australia originated a significant volume of IO loans in 2014 and 2015, which means a record number of these loans are scheduled to convert to P&I over 2019 and 2020, when their five-year IO period ends. IO loans accounted for more than 40 per cent of all mortgages originated by banks for much of 2014 and 2015, with this figure peaking at 46 per cent in June 2015. At current mortgage interest rates, monthly repayments on loans that convert to P&I from IO will increase by around 30 per cent, which can lead to delinquencies. Looking at the collateral pools for RMBS instruments, Moody's said that interest-only loans accounted for around 32 per cent of all loans in such deals - on average - as of November 2017. Within different pools there are widely differing proportions of P&I to IO loans, differing maturity profiles and hence wide variability in the risk of delinquencies as loans convert.