Q1 borrower arrears levels improve for the first time in ten years.

AS the world economy continued its downward spiral during the first quarter of the year Australian residential borrowers defied the debt crash, with arrears generally improving.

Fitch Ratings’ Dinkum Index for 30+ day delinquencies fell to 1.52 per cent in the first quarter of 2009 from 1.75 per cent in Q408. This is the first time in its ten-year history the Index has recorded an improvement – rather than a deterioration – in arrears from Q4 to Q1.

Successive cash rate reductions since September 2008 are likely to have contributed to the result, while the federal government’s $1,000 payment per child to some two million eligible Australian families last December was probably also a factor.

The second round of payments this year is expected to keep arrears at current levels through the second quarter.

The 90+ day low doc Index tells a different story, with the Reduced Documentation Mortgage (RDM) Dinkum Index rising to 3.51 per cent from 3.36 per cent in the previous quarter driven by non-conforming low doc borrowers.

The low doc sector continues to suffer since the closure of the low doc origination market and the inability of borrowers to refinance their way out of trouble.

Borrowers who were able to ride out the wave of rising interest rates in the first half of last year however will be well placed to build additional equity in their homes and protect themselves from any temporary loss of income due to unemployment.

In the securitisation markets, the Australian Office of Financial Management has announced nine mandates since the beginning of the year, with Credit Union Australia, Bendigo and Adelaide Bank and AMP Bank announcing a combined $1.25 billion in transactions in February.

A further three mandates of $1.5 billion in total were announced in March for Challenger Mortgage Management, Bank of Queensland and Liberty Financial, while Members Equity Bank, Firstmac Limited and Resimac are set to finalise transactions by the end of May.