Take the pressure down

The prospective downgrading of credit insurer PMI Group, which would flow through to its Australian subsidiary, points to another source of pressure on an overheating home loan market.

The credit rating agency Moody’s is reviewing the ratings issued by PMI Australia, one of the biggest providers of mortgage insurance in this market, in the wake of the losses experienced by its US parent. While the Australian business is solidly profitable and exposed purely to an Australasian market that bears no resemblance to the US sub-prime mortgage market, it would be unusual – although not unprecedented – for it to retain a higher rating than its parent. It's probable that it will suffer a one-notch downgrade from AA to AA-.

While some say a downgrade would threaten up to $83 billion in bonds backed by Australian mortgages, in fact only a small proportion would be affected – the subordinated tranches that probably constitute three or four per cent of the market.

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