The credit quality of residential mortgages being used as security for banks' covered bonds will improve next year due to the Reserve Bank enforcing restrictions on banks' high loan-to-vale ratio (LVR) lending, Moody's says.
"The credit quality of mortgages in the New Zealand cover pools will improve in 2014 as a result of the Reserve Bank of New Zealand’s new macro-prudential policy to restrict banks from providing mortgages with LVRs above 80%. Under the new guideline, such loans can constitute no more than 10% of all new lending. We therefore expect the credit quality of cover pools to improve because the banks will have a smaller selection of high LVR loans to include in their pools," Moody's says.
Since October 1 the Reserve Bank has restricted banks' new residential mortgage lending at LVRs of over 80% to no more than 10% of the dollar value of their new housing lending flows.
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1 Comments
Is this a serious issue or just some irreverent nonsense?
Fitch made this recent comment in respect of an ASB covered bond issue.
As of September 2013, the cover pool consisted of 29,290 loans secured by first-ranking mortgages of NZ residential properties with a total outstanding balance of NZD4.4bn. The portfolio is wholly made up of full documentation loans which have a weighted average (WA) current loan-to-value ratio of 48.8%, a Fitch calculated WA indexed LVR of 45.9%, and a WA seasoning of 40.7 months. Read more
I suspect all the covered bond issues from other banks have a similiar mortgage pool profile.
Hence general unsecured creditor claims against the best assets are excluded from OBR pre-positioning.
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