It hasn't been a good month or so for irish banks... Right, true, AIB & BofI sold some paper around, covered bonds that is. And this triggered a veritable drooling of happiness from some (mostly sell-side) analysts. But then the mortgages defaults figures for Q3 came in... Boom! The IMF started sounding alrams about risks in the stalled banking sector... Boom-Boom! And now, Moody's weighing in too...
"Announcement: Moody's: Irish Prime RMBS performance steadily worsened in October 2012
Global Credit Research - 19 Dec 2012
Irish Prime RMBS Indices -- October 2012
London, 19 December 2012 -- The performance of the Irish prime residential mortgage-backed securities (RMBS) market steadily worsened during the three-month period leading to October 2012, according to the latest indices published by Moody's Investors Service.
From July to October 2012, the 90+ day delinquency trend and 360+ day delinquent loans (which are used as a proxy for defaults) reached a new peak, rising steeply to 16.52% from 15.19% and to 7.91% from 6.58%, respectively, of the outstanding portfolios. Moody's annualised total redemption rate (TRR) trend was 2.95% in October 2012, down from 3.40% in October 2011.
Moody's outlook for Irish RMBS is negative (see "European ABS and RMBS: 2013 Outlook", 10 December 2012,http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF309566). The steep decline in house prices since 2007 has placed the majority of borrowers deep into negative equity. Falling house prices will increase the severity of losses on defaulted mortgages (see "High negative equity levels in Irish RMBS will drive loan loss severities to 70%", 16 May 2012 http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF285527). The rating agency expects that the Irish economy will only grow 1.1% in 2013 (see "Credit Opinion: Ireland, Government of", 07 November 2012 http://www.moodys.com/research/Ireland-Government-of-Credit-Opinion--COP_423933). In this weak economic recovery, it will be difficult for distressed borrowers to significantly increase their debt servicing capabilities and so arrears are likely to continue increasing.
On 15 November, Moody's downgraded nine senior notes and placed on review for downgrade one senior note out of five Irish RMBS transactions, following the rating agency's revision of key collateral assumptions. The downgrades reflect insufficient credit enhancement for notes rated at the country ceiling. All notes affected by this rating action remain on downgrade review pending re-assessment of required credit enhancement to address country risk exposure. Moody's also increased assumptions in eight other transactions, which did not result in any rating action due to sufficient credit enhancement. (See PR: http://www.moodys.com/research/Moodys-takes-rating-actions-on-5-Irish-RMBS-transactions--PR_259945).
As of October 2012, the 19 Moody's-rated Irish prime RMBS transactions had an outstanding pool balance of EUR48.97 billion. This constitutes a year-on-year decrease of 7.1% compared with EUR52.69 billion for the same period in the previous year."
So, that's EUR48.97 billion of trash which are 7.91% fully destroyed and decomposing (EUR3.87bn) and is showing signs of severe rot at 16.52% (EUR7.96bn). With 70% expected loss, at EUR8.28bn expected writedown, swallowing all funds allocated under PCARs to mortgages arrears?
Who says there's just one Mr Grinch? Comes Christmas time, its IMF & Moody's & bad, bad, bad, moral-hazardous households that just can't pay their mortgages... Time to raise those AVR mortgages costs, then, to cover the losses on errm... mortgages...