OREANDA-NEWS. Fitch Ratings says in a new report released today, that over the last decade a significant portion of arrears was due to low-doc loans. Arrears have been trending down due to the declining portion of low-doc loans in the market and improved economic and housing market conditions.

In January 2009, low-doc loans accounted for 14% of the Dinkum index and arrears were at a high of 1.84%. As of September 2015, full-doc loans accounted for 98% of the Dinkum, and arrears reached a decade low of 0.91%.

Regulation means lenders are taking more steps to ensure borrowers have the capacity to service the loan, primarily through income verification. As the origination of low-doc loans is limited and the existing loans are amortising, the Dinkum Index could approach a floor of approximately 0.8%.

In the current positive serviceability environment, mortgage delinquencies are largely due to factors outside of the Australian economy such as divorce, illness and extraordinary expenses. The only way from this low base is up. However, for arrears to deteriorate above the previous peak witnessed in January 2009, the economy and the local housing market would need to be worse than what they have been during the last decade due to the improved asset quality.

The full report, which is part of Fitch's "Asia-Pacific Structured Finance Chart of the Month" series that highlights topical issues in the region, can be found at www.fitchratings.com.