Ratings agency busts non-bank mortgages myth

Non-bank arrears are much lower than the regionals and even the majors, questioning the extension of APRA’s remit to the sector

Ratings agency busts non-bank mortgages myth
Non-bank arrears are much lower than the regionals and even the majors, questioning the extension of APRA’s remit to the sector

Fewer than 1 in 100 prime mortgages written by non-banks are in arrears, beating majors and non-major banks, according to international rating agency S&P Global Ratings.

In comparison, major banks arrears rose to 1.11% in July and non-major arrears rose to 2.35%. Non-banks, noted S&P, had achieved a “pronounced improvement” in reducing arrears from 2.99% in January 2009 to 0.85% in July, the only lenders to decrease arrears over the month. 

The findings come as non-banks prepare for regulation by APRA, first announced in the Federal Budget. 

Non-banks criticized the move in their response to the Treasury and S&P’s figures appear to back up a claim by Pepper global CEO Michael Culhane (pictured): “the performance of Pepper’s loan book before, during and after the GFC demonstrates the fact that careful manual assessment of each borrower’s needs and capacity to pay has resulted in very low levels of arrears and losses for Pepper and our customers.”

Liberty CEO James Boyle told MPA that it was in non-banks’ interest to “deliver outstanding customer service while building balanced portfolios that are diverse in geographies, products, and borrower types, for example. This is even more notable when you consider that all of the non-banks combined do not have the scale of even one-quarter of any one of the major banks.”


Non-conforming vs prime

Arrears for non-conforming loans are considerably higher than prime loans, however.

With non-conforming loans now near-exclusively written by non-banks, an arrears rate of 4.80% is a concern. This number has come down, however, from 4.84% in June and S&P said non-conforming arrears had experienced a similar improvement to non-banks’ prime loans, particularly a “noticeable reduction in low-documentation and higher loan to value loans.”

Low-doc loans now only account for 15% of nonbank lending, down from 22% in 2009. High LVR loans have declined from half of all lending to 28% of lending over the same period.


Helping brokers confront myths

S&P’s figures can also help brokers present non-banks as a viable option to consumers.

Consumer ignorance and suspicion of the non-banks continues to be the main barrier to putting more business with them, according to 38% of respondents to MPA’s Brokers on Non-Banks survey.

In a Senate meeting discussing APRA’s powers over non-banks, Tasmanian senator Peter Whish-Wilson asked APRA chairman Wayne Byres to explain what ‘shadow banking’ was, adding that “I think I know what it is, but I think most people think it is illegal banking and kind of shady and dodgy.”


First ever non-banks roundtable - Tuesday 10th October

Better Mortgage Management, Firstmac, Homeloans Ltd, La Trobe Financial, Liberty, Pepper Money and RESIMAC will be attending MPA's first ever non-banks roundtable. You can watch the roundtable live, for free and online and send in your questions before and during the roundtable.

Sign up and send in your questions here: https://www.surveymonkey.com/r/NonBankLendersRoundtable

Topics include APRA, turnaround times, lending to non-residents, commissions, and consumer awareness. 

 

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