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ARCHIVE | Guidance | Criteria | Structured Finance | RMBS: Methodology And Assumptions For The Australian And New Zealand Residential Mortgage Markets

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ARCHIVE | Guidance | Criteria | Structured Finance | RMBS: Methodology And Assumptions For The Australian And New Zealand Residential Mortgage Markets

(Editor's Note: This article is no longer current. The related methodology has been retired.)

Overview And Scope

S&P Global Ratings in this document provides additional guidance about how it applies its criteria in relation to Australian and New Zealand residential mortgage-backed securities (RMBS).

We review our outlook assumptions periodically and update them in response to changes in the economy and housing markets. This article is intended to provide additional guidance about how we apply our Australian and New Zealand residential loan criteria in our ratings analyses. These criteria are set out in:

This guidance document is intended to be read in conjunction with the relevant criteria and accompanying outlook commentaries for the jurisdictions.

Under our residential loans criteria, the 'B' projected loss level for an archetypal residential loan pool matches our expectations of losses and therefore varies according to changes in our outlooks for the respective mortgage markets.

A change in a country's mortgage market outlook could reflect a variety of rating factors because the outlook takes into account several variables, including:

  • Changes in loan underwriting criteria;
  • Structural changes in the mortgage market;
  • Macroeconomic conditions and forecast unemployment rates;
  • Inflation and interest rates;
  • Prevailing mortgage loan performance, defaults, delinquencies, and their transition rates;
  • Expected home price movements;
  • Observed changes in discounts on forced sales; and
  • Time to foreclosure.

Guidance

Table 1 shows the projected losses for the archetypal pool at a 'B' rating level and our view of the current market conditions.

Table 1

Projected Losses By Jurisdiction
Jurisdiction Projected losses for archetypal pool at 'B' rating level (%)
Australia 0.4
New Zealand 0.4

Table 2 shows the loss estimates by rating for the archetypical pool for Australia and New Zealand.

Table 2

Key Credit-Enhancement Components For The Archetypical Pool By Rating – Australia And New Zealand
Rating scenario
AAA AA A BBB BB B
Credit enhancement (%) 5.0 3.6 2.2 1.3 0.8 0.4
Foreclosure frequency (%) 10.0 7.5 5.0 3.2 2.1 1.1
Loss severity* (%) 50 47 45 41 36 31
*We have calculated loss severity for Illustration purposes by assuming 5% variable selling costs, A$5,000 fixed selling costs, a metropolitan property of A$100,000, and an interest rate through accrual of 12.75%.

Revisions And Updates

This article was originally published on Jan. 15, 2019.

  • On Jan. 8, 2020, we republished this article following a periodic review of our assumptions and outlook for Australian, Japanese, and New Zealand residential mortgage markets.
  • On May 19, 2020, we republished this article following a review of our assumptions and outlook for the Australian and New Zealand markets. We increased our 'B' expected–case foreclosure frequency assumptions for the archetypal pool for Australia and New Zealand to 1.3% from 1.1% after reviewing the macroeconomic and market conditions for these jurisdictions. We added table 2 to show the revised loss estimates by rating for the archetypical pool for Australia and New Zealand. We also updated the interpolated intermediate foreclosure frequency assumptions for the 'B+' to 'AA+' rating levels for these jurisdictions accordingly (see table 2) and the articles listed in the "Related Research" section.
  • On Jan. 7, 2022, we republished this article following a review of our assumptions and outlook for the Australian and New Zealand markets. We decreased our 'B' expected-case foreclosure frequency assumptions for the archetypal pool for Australia and New Zealand to 1.1% from 1.3% after reviewing the macroeconomic and market conditions for these jurisdictions. We updated table 2 to show the revised loss estimates by rating for the archetypical pool for Australia and New Zealand. We also updated the interpolated intermediate foreclosure frequency assumptions for the 'B+' to 'AA+' rating levels for these jurisdictions accordingly (see table 2) and the articles listed in the "Related Research" section.
  • On Jan. 6, 2023, we republished this article under the current title (previously "Methodology And Assumptions For The Australian, Japanese, And New Zealand Residential Mortgage Markets") and removed references to Japan after our criteria "Methodology And Assumptions For Rating Japanese RMBS," published Dec. 19, 2014, was superseded by our update to "Global Methodology And Assumptions: Assessing Pools Of Residential Loans," published Jan. 25, 2019. We also removed a paragraph added in Jan. 7, 2022, that is no longer relevant. Finally, we updated the contact information, the Related Criteria, and the Related Research sections.
  • On Aug. 16, 2023, we republished this article to update table 2 to reflect the rounding convention adopted in our "Australian RMBS Rating Methodology And Assumptions," published Sept. 1, 2011.

Related Criteria

Related Research

This report does not constitute a rating action.

This article is a guidance document for Criteria (Guidance Document). Guidance Documents are not Criteria, as they do not establish a methodological framework for determining Credit Ratings. Guidance Documents provide guidance on various matters, including: articulating how we may apply specific aspects of Criteria; describing variables or considerations related to Criteria that may change over time; providing additional information on non-fundamental factors that our analysts may consider in the application of Criteria; and/or providing additional guidance on the exercise of analytical judgment under our Criteria.

Our analysts consider Guidance Documents as they apply Criteria and exercise analytical judgment in the analysis and determination of Credit Ratings. However, in applying Criteria and the exercise of analytic judgment to a specific issuer or issue, analysts may determine that it is suitable to follow an approach that differs from one described in the Guidance Document. Where appropriate, the rating rationale will highlight that a different approach was taken.

Primary Credit Analyst:Narelle Coneybeare, Sydney + 61 2 9255 9838;
narelle.coneybeare@spglobal.com
Secondary Contact:Kate J Thomson, Melbourne (61) 3-9631-2104;
kate.thomson@spglobal.com

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