The US subprime mortgage crisis and credit crunch could be about to have a direct impact on the Australian home mortgage market, especially the higher risk low doc and no doc sectors.

Credit ratings agency, Moody’s Investors Service, has announced that it may cut its ratings on $83 billion of Australian mortgage-backed bonds.

The bonds may be lowered because they are linked to home loans insured by PMI Mortgage Insurance Ltd, which may have its credit rating downgraded, Moody’s said.

PMI is a Californian-based mortgage insurer that has been very active in writing business in Australia by providing so-called Lenders Mortgage Insurance, which has become a major reason why low doc and no doc housing loans have taken off in this country.

The possible downgrade applies to the US parent, which would in turn have “negative implications for the ratings of its international subsidiaries.”

As Bloomberg reports:

PMI reported its first loss as a publicly traded company in the July-to-September period as it paid more to bail out lenders from bad loans. The company has declined 79% over the past year in New York Stock Exchange trading.

About 90% of the Australian debt under review has the highest investment grade rating of Aaa. The debt comprises 325 tranches of debt in 144 mortgage-backed securities, Moody’s said in a statement.

Moody’s reaffirmed the existing ratings of Genworth, another big US Lenders Mortgage insurer that operates in Australia. Moody’s said the Aa2 rating was reaffirmed “with negative outlook” meaning it could be downgraded if its portfolio of mortgages continues to worsen.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey