Regulators had no idea of what banks were up to before 2007
Mortgage defaults soar by 329pc
By George Lekakis, HeraldSun
August 7, 2007 12:00am
AUSTRALIA'S insurance regulator has drawn attention to a spike in the number of stressed homebuyers, confirming that claims for mortgage defaults soared by 329 per cent in the year to December.
Home lenders lodged claims for $210 million worth of bad loans in the 12 months to December compared with only $49 million in 2005, according to the Australian Prudential Regulation Authority.
The official statistics show the rise in claims for lenders' mortgage insurance outstripped growth rates of all other classes of general insurance.
News of the claims blowout came as the subprime mortgage crisis in the US continued to spook Australian investors, who yesterday dumped rate-sensitive stocks such as Babcock & Brown and Macquarie Bank.
The market-wide rout resulted in another $30 billion being wiped from the local bourse, with most stockmarket favourites such as the major retail banks and big miners all taking hits.
The big fall on Wall Street on Friday night was the trigger for yesterday's rout on the ASX.
US investment bank, Bear Stearns, which is facing a mountain of losses from the subprime market, warned on Friday it was weathering the worst crisis in financial markets in more than 20 years.
The blowout in Australian insurance claims by home lenders is the latest evidence pointing to a steep rise in the number of borrowers unable to meet mortgage repayments.
"The higher level of claims is consistent with housing stress reported in some areas of western Sydney and elsewhere in Australia," APRA stated in its half yearly general insurance bulletin.
All of the major banks – ANZ, National Australia Bank, Commonwealth Bank and Westpac – were sold down heavily as investors reiterated concerns about credit quality.
But the ratings agencies appear to be focused on rising loan losses among second and third tier non-bank lenders.
Standard & Poor's announced it was placing on credit watch the ratings of two tranches in a securitisation program issued by a subsidiary of Allco Finance Group.
It also said Australian banks' exposure to US subprime mortgage-related instruments was "either minimal or manageable at this time".
Money market traders said the likelihood of the Reserve Bank raising official interest rates tomorrow was now a 50/50 bet.