Australian Lenders Use Different Delinquency Rules.(Brief Article)

Mortgage servicing is a different ballgame in Australia and, as that country's mortgage-backed securities are being increasingly purchased by investors outside its borders, the Australian rules for servicing have become increasingly important for investors in the U.S. and elsewhere to understand.

A recent report by Credit Suisse First Boston notes that, "While Australian MBS enjoy a degree of homogeneity greater than other MBS markets, significant differences do exist in business practices across issuers. These differences can be found in origination practices, underwriting guidelines, performance and servicing policies and procedures."

Among the most striking differences is the way the game is played in Australia is how servicers and MBS investors gauge loan performance and delinquencies.

Often, Australian delinquency statistics can look relatively attractive. Recent data from rating agency Standard & Poor's, for example, reported that the percentage of delinquent home loan borrowers in Australia decreased during the third quarter of 2001 compared to the second quarter.

To some extent such statistics may accurately reflect the fact that, culturally, Australian borrowers generally make paying off their loans a higher priority than Americans do. But it's also to a certain degree an apples-to-oranges comparison, as Australians track and define delinquencies and credit histories differently.

It's not merely a difference in how the two countries credit score their loans, it's that Australians generally don't literally keep "score," per se, at all. There is no standard Fair, Isaac & Co.-like assignment of numerical values to credit grades that all lenders recognize, according to Australian mortgage broker Steve Cockrane, managing director of Lifestyle Mortgage Solutions, Mulgrave. Australia's credit reporting agencies ignore many of the early-stage elinquencies that U.S. companies track, recording only the more severe delinquencies closer to default.

In addition - according to the CSFB report - there are two basic methods ...