Australian borrowers who took out ‘low-doc’ mortgages are more likely to default than people with standard loans, according to a research by the Reserve Bank of Australia (RBA).
‘No-doc’ or low-doc mortgages are loans with higher interest rates that require little or no documentary evidence of the borrower’s ability to repay his debt. At present, there are around AU$50 billion (S$65.57 billion) worth of low-doc mortgages in Australia, accounting for five percent of bank balance sheets.
The central bank also revealed that 1.6 percent of low-doc mortgages were over 90 days past due, compared with 0.4 percent for their standard counterparts.
Moreover, Standard & Poor’s analysis showed that six percent of “prime” low-doc mortgages were over 30 days in arrears in May, compared to just 1.33 percent in loans with full documentation. The ratings agency added that default rate for this type of loan had also increased by two-fold in the past two years.
Low-doc mortgages were originally taken out by a small proportion of self-employed borrowers who were unable or unwilling to provide business statements and tax returns. However, these were widely abused by mortgage brokers because of its non-stringent credit check002E.
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