australian residential mortgage delinquencies to stabilize after a slight decline, but regional...

SPECIAL COMMENT

RESIDENTIAL MBS

Table of Contents:

SUMMARY 1 DELINQUENCIES MORE SENSITIVE TO INCREASES THAN DECREASES IN THE CASH RATE 3 STATE AND REGIONAL ANALYSIS 5 DELINQUENCIES, HOME EQUITY AND HOUSE PRICE DECLINES 8 AUSTRALIA’S MORTGAGE LANDSCAPE 9 CATEGORISING DELINQUENCY PERFORMANCE 10 UNDERLYING DATA 11 SYDNEY – 30-PLUS DAY DELINQUENCIES 12 MELBOURNE – 30-PLUS DAY DELINQUENCIES 15 BRISBANE – 30-PLUS DAY DELINQUENCIES 17 PERTH – 30-PLUS DAY DELINQUENCIES 19 ADELAIDE – 30-PLUS DAY DELINQUENCIES 21 APPENDIX A: DELINQUENCY REFERENCE SHEET 23 APPENDIX B: REGIONAL PROFILES 25 APPENDIX C: REGIONAL SHARES OF TOTAL DELINQUENCIES 27 APPENDIX D: LOCATION MAPS 30 MOODY’S RELATED RESEARCH 42

Analyst Contacts:

SYDNEY +612.9270.8199

Arthur Karabatsos +612.9270.8160 Vice President - Senior Analyst [email protected]

Andrew Crawshaw-Fardouly +612.9270.8156 Associate Analyst [email protected]

Dylan Bourke +612.9270.8119 Associate Analyst [email protected]

» contacts continued on the last page

OCTOBER 18, 2012

Australian Residential Mortgage Delinquencies to Stabilize after a Slight Decline, but Regional Disparity Persists

Summary

Australian residential mortgage delinquencies are expected to stabilize, after a slight decline over the last 12 months. Such delinquencies have failed to fall further despite cuts by the Reserve Bank of Australia (RBA) to the official cash rate of 100 basis points between November 2011 and May this year, mainly because lenders have not passed onto home owners the full extent of the RBA’s rate reductions.

At the same time, disparity between the regions persists with higher delinquencies in regions with higher exposures to tourism, manufacturing and construction. Those with lower delinquencies have relatively more professional and government workers, as well as workers in education.

As of May, of the major cities, Brisbane and Sydney had the highest 30-plus day delinquencies of 2%, which is considered poor. Perth was in third place, with a satisfactory rate of delinquencies, at 1.7%. Melbourne and Adelaide had the lowest arrears, of 1.5%. These compare to the national average of 1.8%.

Our analysis shows that borrower equity is a stronger driver of delinquencies than house price decreases. For example, house prices in Lower Northern Sydney have suffered the largest fall in Sydney of 14%, yet the region has the lowest delinquencies in the city because of relatively high equity levels.

Over the next 12 months, residential mortgage delinquencies in Australia will hold steady because we expect the country’s unemployment rate – which measured 5.4% in September -- to remain in the low to mid-5% range. Also any reductions in the cash rate will have limited benefits for mortgage holders, if lenders do not reflect the full extent of the reductions in their own home loan rates.

The biggest threats to the Australian economy and mortgage delinquencies are a deterioration in the euro area financial crisis or a sudden and large contraction in growth in China. In comparison with other advanced economies, Australia is well placed to react to such scenarios.

To help lower mortgage payments, the RBA can lower the official interest rate of 3.25%, which is high by G20 standards. In addition, the government, which has a low level of debt (23% of GDP) compared with other developed economies, has room to introduce fiscal stimulus to help lower unemployment, in the event of external global shocks.

We have also produced a supplementary report examining delinquencies by postcode, titled “Australian Mortgage Delinquencies by Postcode – 2012”. The report was published on 18 October.

mailto:[email protected]�

http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF302931�

RESIDENTIAL MBS

2 OCTOBER 18, 2012

SPECIAL COMMENT: AUSTRALIAN RESIDENTIAL MORTGAGE DELINQUENCIES TO STABILIZE AFTER A SLIGHT DECLINE, BUT REGIONAL DISPARITY PERSISTS

EXHIBIT 1

30-Plus Day Delinquencies in 2010–12 March 2010, 1.36%

June 2011, 1.89%

May 2012, 1.82%

Source: Moody’s Investors Service

LEGEND

Performance 30-Plus Day Delinquencies

Very Poor 2.5% or greater

Poor 2% to 2.5%

Satisfactory 1.5% to 2%

Good 1% to 1.5%

Very Good 0% to 1%

Since last year, national 30-plus day delinquencies have been moving towards the satisfactory category, with an additional four regions categorized as performing satisfactorily. In the poor or very poor performance categories, there were three fewer regions, and there was one less region in the good and very good categories.

Of the 65 regions, 30.7% are categorized as performing satisfactorily, 38.4% are in the poor or very poor category, and 30.9% are considered good or very good.

Of the 25 regions performing poorly or very poorly, almost half (12) are in New South Wales, seven in Victoria, three in Western Australia and two in Victoria.

RESIDENTIAL MBS

3 OCTOBER 18, 2012


Delinquencies More Sensitive to Increases Than Decreases in the Cash Rate

Between June 2011 and May 2012, the percentage of 30-plus day delinquencies have merely moved towards stabilization, even though unemployment has held steady and the official cash rate has decreased by 100 basis points. This is because since the global financial crisis, lenders have been changing mortgage interest rates out of step with the RBA, citing increased funding costs. Lenders have increased mortgage rates more than the official cash rate, and decreased them less than the decreases in the RBA’s rate.

From March 2010 to June 2011, the cash rate increased by 100 basis points and delinquencies increased by 53 basis points to 1.89% (satisfactory) from 1.36% (good). From July 2011 to May 2012, the cash rate declined by 100 basis points but delinquencies fell only 7 basis points, to 1.82%. The unemployment rate for both periods was stable and within a very narrow range of 5.0% and 5.3%.

Exhibit 2 shows the changes in cash and mortgage rates between March 2010 and May 2012. Although there was a net zero change in the cash rate, mortgage rates increased 41 basis points.

EXHIBIT 2

Changes in Cash Rates and Mortgages Rates from March 2010–May 2012

Date RBA Cash Rate

Increase

CBA Westpac NAB ANZ % Banks1 Passed on Cash Rate Increase (Average)

Mar-10 25

25 25 25 25 100%

Apr-10 25

25 25 25 25 100%

May-10 25

25 25 25 25 100%

Nov-10 25

45 35 43 39 162%

100

120 110 118 114 116%

Date RBA Cash Rate

Decrease

CBA Westpac NAB ANZ % Banks Passed on Cash Rate Decrease (Average)

Nov-11 -25

-25 -25 -20 -25 95%

Dec-11 -25

-25 -25 -25 -25 100%

Feb-12 0

10 10 9 6 Independent Rate Rise

Apr-12 0

0 0 0 6 Independent Rate Rise

May-12 -50

-40 -37 -32 -37 73%

-100

-80 -77 -68 -75 75% Source: Reserve Bank of Australia, CBA,, Westpac, NAB, ANZ Exhibit 3 charts the margin between the cash rate and the banks’ standard variable interest rate. Before the global financial crisis, when the banks were moving in step with changes in the cash rate, the variable interest rate was a constant amount above the cash rate.

EXHIBIT 3

Margin Between Mortgage Spreads and Cash Rate from January 2003–May 2012

Source: Reserve Bank of Australia

1 “Banks” refers to the four major banks -- Commonwealth Bank of Australia (CBA), Westpac Banking Corporation, National Australia Bank (NAB) and the

Australian and New Zealand Banking Group (ANZ) -- which together, have a market share of more than 80% of residential mortgage loans in Australia.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Jan-

2003

May

-200

3

Sep-

2003

Jan-

2004

May

-200

4

Sep-

2004

Jan-

2005

May

-200

5

Sep-

2005

Jan-

2006

May

-200

6

Sep-

2006

Jan-

2007

May

-200

7

Sep-

2007

Jan-

2008

May

-200

8

Sep-

2008

Jan-

2009

May

-200

9

Sep-

2009

Jan-

2010

May

-201

0

Sep-

2010

Jan-

2011

May

-201

1

Sep-

2011

Jan-

2012

May

-201

2

%

Banks moving in step with the RBA

RESIDENTIAL MBS

4 OCTOBER 18, 2012


Strong Australian Dollar Hurting Tourism, Manufacturing and Retailing The Australian dollar has steadily gained strength since the global financial crisis in 2007-08 now trading at more than one US dollar for almost two years This is in sharp contrast with the historical trading range of between fifty to eighty US cents between 1990 and 2007. Regions with over-exposures to manufacturing, retail and tourism have found it challenging to adjust to the strong appreciation in the currency, despite the credit benefits of lower interest rates.

The strong Australian dollar makes domestically manufactured goods more expensive and therefore more difficult to export. It also means that local buyers find it cheaper to shop online from overseas suppliers, than to buy from local retailers. Australians have made more trips overseas rather than travelling domestically, because of the stronger Australian dollar, while foreign tourists find it more expensive to visit Australia.

We discuss in more detail the impact of the strong Australian dollar on tourism, later in this report.

Exhibit 4 shows the movements in the AUD:USD exchange rate since January 1990.

EXHIBIT 4

AUD:USD Exchange Rates from January 1990–July 2012

Source: Reserve Bank of Australia

Weak building approvals hurting construction jobs Between March 2010 and May 2012 there has been a 20% decrease in building approvals negatively impacting construction job, and a credit negative for regions with a relatively higher proportion of workers in construction.

EXHIBIT 5

Australian Building Approvals from January 2010–May 2012

Source: Australian Bureau of Statistics

Regions with the highest relative proportions of workers in construction are the Sunshine Coast (15.7%), the Gold Coast (15.3%) and the Central Coast (13.6%) versus the national average of 9.1%. These regions are performing either poorly or very poorly in relation to residential mortgage deficiencies. (Refer to Appendix A for details.)

Tighter credit criteria for developers, soft property prices and weak consumer sentiment have all negatively impacted building approvals.

0.50

0.60

0.70

0.80

0.90

1.00

1.10

Jan-90Jul-90Jan-91Jul-91Jan-92Jul-92Jan -93Jul-93Jan-94Jul-94Jan-95Jul-95Jan-96Jul-96Jan-97Jul-97Jan-98Jul-98Jan-99Jul-99Jan-00Jul-00Jan-01Jul-01Jan-02Jul-02Jan-03Jul-03Jan-04Jul-04Jan-05Jul-05Jan-06Jul-06Jan-07Jul-07Jan-08Jul-08Jan-09Jul-09Jan-10Jul-10Jan-11Jul-11Jan-12Jul-12

USD

10,000

11,000

12,000

13,000

14,000

15,000

16,000

Jan-

2010

Feb-

2010

Mar

-201

0

Apr-

2010

May

-201

0

Jun-

2010

Jul-2

010

Aug-

2010

Sep-

2010

Oct

-201

0

Nov

-201

0

Dec

-201

0

Jan-

2011

Feb-

2011

Mar

-201

1

Apr-

2011

May

-201

1

Jun-

2011

Jul-2

011

Aug-

2011

Sep-

2011

Oct

-201

1

Nov

-201

1

Dec

-201

1

Jan-

2012

Feb-

2012

Mar

-201

2

Apr-

2012

May

-201

2

Num

ber

RESIDENTIAL MBS

5 OCTOBER 18, 2012


State and Regional Analysis

Delinquencies in Mining States Decline the Most Delinquencies in the mining states of Western Australia, the Northern Territory, and Queensland declined the most in the last 12 months. For example, in the Queensland region of Wide Bay Burnett, which is located close to the Bowen Basin, containing Australia’s largest coal reserves, residential mortgage arrears have fallen to 1.9% from 3.0%. However, the Queensland government has recently announced a plan to cut 10,600 public sector jobs (0.46% of Queensland’s total workforce) between 2012 and 2013, which is a credit negative for delinquencies.

Although delinquencies in Queensland have declined, they remain the nation’s highest for two consecutive years.

Exhibit 6 shows delinquencies by state. Between 2011 and 2012, delinquencies in New South Wales, fell only slightly. In Victoria, they have remained constant, and in South Australia, they increased slightly.

EXHIBIT 6

Australia: 30-Plus Day Delinquencies by State from 2010–12

30-Plus Day Delinquencies

State 2010 2011 2012 Change from 2011

Western Australia (WA) 1.40% 2.10% 1.80% -0.30%

Australian Capital Territory (ACT) 0.60% 1.00% 0.80% -0.20%

Northern Territory (NT) 0.60% 0.90% 0.70% -0.20%

Queensland (QLD) 1.40% 2.20% 2.00% -0.20%

Tasmania (TAS) 1.10% 1.60% 1.50% -0.10%

New South Wales (NSW) 1.70% 2.10% 2.00% -0.10%

Victoria (VIC) 1.10% 1.50% 1.50% 0.00%

South Australia (SA) 1.00% 1.50% 1.60% 0.10%


Decline in Domestic Tourism Affects Queensland and Western Australia Queensland and Western Australia, the primary beneficiaries of Australia’s mining boom, also contain regions highly dependent on tourism.

Exhibit 7 lists the tourism regions2 and their delinquency rates.

EXHIBIT 7

Australia: 30-Plus Day Delinquencies by Tourist Region from 2010–12

State Region 2010 2011 2012

QLD Gold Coast 1.57% 3.11% 2.86%

WA Lower Western WA 2.00% 2.78% 2.57%

QLD Sunshine Coast 1.84% 2.68% 2.48%

NSW Richmond-Tweed 1.37% 2.20% 2.35%

QLD Far North 1.56% 2.59% 2.27%

NSW Mid-North Coast 1.86% 2.22% 2.27%

National Weighted Average 1.36% 1.89% 1.82%


2 As defined by the government report Economic Importance of Tourism in Australia’s Regions Phase 2: Large tourism-dependent regions, published in August

2011.

http://www.ret.gov.au/tourism/Documents/tra/Snapshots%20and%20Factsheets/2011/Economic-Importance-of-Tourism-Phase2.pdf�

RESIDENTIAL MBS

6 OCTOBER 18, 2012


Tourist regions are faring poorly or very poorly in terms of arrears, partly due to the decline in domestic tourism. According to the Australian Bureau of Statistics, Australians made a record eight million short-term trips overseas in 2011-12, up from 7.4 million in 2010-11, and more than double the number 10 years ago, when the Australian dollar was only half as strong against the US dollar.

Moreover before the financial crisis of 2007-08, more foreign tourists were visiting Australia than Australians were going overseas; the opposite is now true.

High LTV Ratios & Jobs in Manufacturing, Transport and Construction Affect New South Wales New South Wales’ delinquency rate is high because it has five of the nine worst-performing regions in the country. (See Exhibit 8.)

Sydney, the state capital, has regions with relatively high loan-to-value (LTV) ratios, which is a key indicator of delinquency.

The city also has larger proportions of workers in sectors such as manufacturing (9.9% versus the national average of 8.3%) and construction (10.2% versus the national average of 9.1%).

In addition, Sydney has smaller proportions of workers in more highly skilled and higher-paid sectors such as education (6.5% versus the national average of 7.6%), and professionals (5.4% versus the national average of 7.7%).

EXHIBIT 8

Australia: 30-Plus Day Delinquencies in Very Poorly Performing Regions from 2010– 12


NSW Outer South Western Sydney 2.55% 2.85% 3.19%

NSW Central Coast 2.33% 3.14% 3.02%

QLD West Moreton 1.78% 2.22% 3.00%

NSW North Western Sydney 2.37% 2.97% 2.91%

QLD Gold Coast 1.57% 3.11% 2.86%

NSW Fairfield-Liverpool 2.77% 3.15% 2.62%

WA Lower Western WA 2.00% 2.78% 2.57%

NSW Illawarra 1.82% 2.19% 2.55%

QLD Ipswich City 1.39% 2.37% 2.53%



Higher Delinquencies in Regions with Higher Long-Term Unemployment Rates We have aligned our regional definitions with those from the Australian Bureau of Statistics. Overlaying the bureau’s unemployment and jobs data provides further insight into the relationship between delinquencies and unemployment.

Regions with high delinquency rates have had, on average, higher long-term unemployment rates (5.95% versus the national average of 5.37%), and larger proportions of workers in sectors such as manufacturing (10.3% versus the national average of 8.3%), and construction (10.4% versus 9.1%).

In an economic downturn, these workers are more likely to become unemployed or underemployed, which in turn, leads to a higher likelihood of mortgage arrears.

Lower Delinquencies in Regions with Professionals and Lower Long-Term Unemployment Rates Regions with low delinquency rates have had, on average, lower long-term unemployment rates (4.7% versus the national average of 5.37%). They also have larger proportions of professional workers (10.0% versus the national average of 7.7%), and jobs in education (8.6% versus 7.6%).

RESIDENTIAL MBS

7 OCTOBER 18, 2012


Employees in these two sectors have better skills, higher wages, and, in the case of education, better job security.

Job security in the Australian Capital Territory and the Northern Territory is skewed by the large number of government jobs, which constitute 31% of the market in the former and 16.4% in the latter, versus the national average of 6.5%. The Northern Territory also benefits from the mining boom, which has helped make it the best-performing region. Mining provides 3.4% of jobs in the Northern Territory, versus the national average of 2%.

Exhibit 9 lists the regions with the lowest delinquencies.

EXHIBIT 9

30-Plus Day Delinquencies in Very Good Performing Regions from 2010–12


QLD Brisbane City Inner Ring 0.60% 1.27% 0.96%

WA Central Metropolitan 0.39% 1.29% 0.88%

ACT Australian Capital Territory 0.57% 1.00% 0.84%

NSW Lower Northern Sydney 0.54% 0.59% 0.80%

NT Northern Territory 0.57% 0.92% 0.69%



RESIDENTIAL MBS

8 OCTOBER 18, 2012


Delinquencies, Home Equity and House Price Declines

Borrower Equity: A Stronger Predictor of Delinquencies Than House Price Declines Our analysis shows that, within the major cities, the amount of equity a borrower has in their home is a stronger driver of relative delinquencies than house price declines.

Exhibit 10 shows that higher borrower equity is a stronger driver of delinquency than house price declines. It lists regions in Sydney in order of rising equity and therefore declining LTV ratios. The colour-coded horizontal bars show changes in house prices in each region and reflect delinquency rates in the following categories: Very Poor, Poor, Satisfactory, Good or Very Good.

EXHIBIT 10

Sydney: Loan to Value Ratios Versus Changes in House Prices from May 2011-May 2012

Source: Moody’s Investors Service and RP Data

Exhibit 10 shows that in the regions where borrowers have more equity (the regions at the lower end of the y-axis), delinquency rates are lower, despite larger declines in house prices. For example, in Lower Northern Sydney, where equity levels are high, and where the LTV ratio is at 56.2%, the region’s mortgage delinquency rate of 0.8% is the second-lowest in the country, despite house prices falling by 14%.

In sharp contrast is the country’s worst-performing region of Outer South Western Sydney, where borrowers have less equity in their homes. They have the second-highest LTV ratios in Australia, at 66.9%, and their delinquency rate is at 3.19%, despite house prices falling only marginally, by 1.57%.

Borrower equity is a strong driver of delinquency rates because less affluent borrowers buy lower-value homes with less equity, and try to retain their homes for longer, in times of financial stress. They therefore tend to fall into arrears, because opportunities to take out the equity and downsize to a cheaper home by voluntarily selling are fewer.

For example, the median borrower in Outer South Western Sydney owns a relatively low value property, worth AUD360,000, with a relatively high LTV of 66.9%. If the borrower suffers financial stress, the AUD119,160 equity in their home is less than the median house price in every region in New South Wales. (The lowest median house price is AUD320,000, in New South Wales’ Mid-North Coast.) The borrower therefore does not have the option to downsize to a cheaper home.

In contrast, the median borrower in the Lower North Shore owns a relatively high value home, worth AUD1.1 million, and has a relatively low LTV of 56%. If borrowers in this area suffer financial stress, they can use the AUD484,000 equity in their homes to buy a cheaper property.

-15% -10% -5% 0% 5% 10% 15%

Eastern Suburbs (55.5%)

Northern Beaches (56.1%)

Lower Northern Sydney (56.2%)

Inner Western Sydney (58%)

Central Northern Sydney (58.1%)

St George-Sutherland (58.5%)

Inner Sydney (60.3%)

Illawarra (61.8%)

Canterbury-Bankstown (62.2%)

Fairfield-Liverpool (64%)

Central Western Sydney (64.7%)

Hunter (64.9%)

Central Coast (66%)

North Western Sydney (66.1%)

Outer South Western Sydney (66.9%)

House prices movement

Sydn

ey R

egio

ns

Very Poor Poor Satisfactory Good Very Good

RESIDENTIAL MBS

9 OCTOBER 18, 2012


Nine out of 18 New South Wales regions have median property prices of less than AUD484,000. This makes voluntary sale and avoidance of entering delinquencies more likely.

Australia’s Mortgage Landscape

Australia’s population and mortgage distribution should be taken into account when examining the heat maps. The heat maps of Western Australia, for instance, seem to suggest that half the mortgages in the country are performing either poorly or very poorly.

However, as Exhibit 11 shows, Western Australia’s population is sparse and relatively small. The same is true of the Northern Territory and parts of South Australia.

EXHIBIT 11

Australia: Population Distribution Each dot equals 1,000 people

Source: Australian Bureau of Statistics and Moody’s Investors Service

As Exhibit 12 shows, about half of Australia’s population of 21.5 million live in the east coast capitals of Sydney, Melbourne and Brisbane.

In this report, the term “major capital city” refers only to cities with populations greater than 1 million, and therefore excludes Hobart, Canberra and Darwin.

EXHIBIT 12

Population of Capital Cities

City Population (millions)

Sydney 4.4

Melbourne 4.0

Brisbane 2.1

Perth 1.7

Adelaide 1.2

Hobart 0.5

Canberra 0.4

Darwin 0.1

Source: Australian Bureau of Statistics

≈ 85% of population

RESIDENTIAL MBS

10 OCTOBER 18, 2012


Categorising Delinquency Performance

We measure a region’s delinquency rate by dividing the balance of all 30-plus day delinquent loans by the balance of all loans in the region, including delinquent loans. As Exhibit 13 shows, we then categorize delinquency performance as Very Poor, Poor, Satisfactory, Good or Very Good.

EXHIBIT 13

Australia: Performance Categories for 30-Plus Day Delinquencies



Poor 2% to 2.5%


Good 1% to 1.5%

Very Good 0% to 1%


Since last year, performance in the different regions has been moving towards the middle category of satisfactory.

For 2012, we categorized nine regions as very poor, an improvement from the 11 in 2011. Sixteen regions were considered poor, a slight improvement from 17 the year before. Fifteen regions were categorized as being good, a drop from 17 in 2011, and 20 were satisfactory, an increase from 16 a year ago.

Exhibit 14 shows the changes in performance categories.

EXHIBIT 14

Number of Regions in Each Performance Category from 2010–12

Performance Category 2010 2011 2012 Change from 2011

Very Poor 2 11 9 -2

Poor 5 17 16 -1

Satisfactory 17 16 20 4

Good 23 17 15 -2

Very Good 18 4 5 1


RESIDENTIAL MBS

11 OCTOBER 18, 2012


Underlying Data

Analysis Based on 10% of Mortgage Market We obtained the underlying data for this report from RMBS deals and warehouses, covering more than AUD114.6 billion in mortgages, or about 10% of Australian’s total mortgage market of AUD1.17 trillion.

The originators have been categorised as follows:

Major Banks: Commonwealth Bank of Australia and its subsidiary, Bankwest, Westpac Banking Corporation and its St.George brand, National Australia Bank, and the Australian and New Zealand Banking Corporation.

Other Banks: Macquarie, Bendigo and Adelaide Bank, Bank of Queensland, Members Equity, AMP Banking Limited, Suncorp-Metway Ltd, Citibank, ING and HSBC.

Non-Banks: Interstar, RAMS Home Loans, Pepper Australia Pty Limited, FirstMac, RESIMAC Limited, and Liberty Financial Services.

Building Societies or Credit Unions: Heritage, The Rock Building Society Ltd, Wide Bay, IMB, and the Police Credit Union.

EXHIBIT 15

Breakdown of Mortgage Loans by Originating Entity


Major Banks46%

Other Banks43%

Non-Banks9%

Building Societies or Credit Unions2%

RESIDENTIAL MBS

12 OCTOBER 18, 2012


Sydney – 30-Plus Day Delinquencies

Sydney, along with Brisbane, has the worst weighted average 30-plus day delinquency rate of 2%, which is slightly higher than the national weighted average of 1.8%.

Almost half or seven of the fifteen regions in Sydney are performing either poorly or very poorly. Two of its regions, Outer South Western Sydney and Fairfield-Liverpool, are the only ones in Australia performing very poorly for three consecutive years.

EXHIBIT 16

Sydney: 30-Plus Day Delinquencies from 2010–12


Sydney Regions 2010 2011 2012

Outer South Western Sydney 2.55% 2.85% 3.19%

Central Coast 2.33% 3.14% 3.02%

North Western Sydney 2.37% 2.97% 2.91%

Fairfield-Liverpool 2.77% 3.15% 2.62%

Illawarra 1.82% 2.19% 2.55%

Canterbury-Bankstown 2.05% 2.34% 2.36%

Hunter 2.05% 2.80% 2.25%

Central Western Sydney 1.68% 2.29% 1.75%

Northern Beaches 0.99% 1.38% 1.70%

St George-Sutherland 1.32% 1.94% 1.67%

Central Northern Sydney 1.29% 1.49% 1.52%

Inner Western Sydney 0.98% 1.47% 1.26%

Eastern Suburbs 1.07% 1.05% 1.23%

Inner Sydney 0.99% 1.17% 1.22%

Lower Northern Sydney 0.54% 0.59% 0.80%

Sydney Weighted Average 1.70% 2.10% 2.00%



RESIDENTIAL MBS

13 OCTOBER 18, 2012


Exhibit 17 shows that in Sydney, borrower equity is a stronger driver of delinquencies than house price declines.

EXHIBIT 17

Sydney: Loan-to-Value Ratio Versus Changes in House Prices from May 2010-May 2012


As of May 2012, the median house price in Sydney was AUD615,999.

-15% -10% -5% 0% 5% 10% 15%

Eastern Suburbs (55.5%)

Northern Beaches (56.1%)

Lower Northern Sydney (56.2%)

Inner Western Sydney (58%)

Central Northern Sydney (58.1%)

St George-Sutherland (58.5%)

Inner Sydney (60.3%)

Illawarra (61.8%)

Canterbury-Bankstown (62.2%)

Fairfield-Liverpool (64%)

Central Western Sydney (64.7%)

Hunter (64.9%)

Central Coast (66%)

North Western Sydney (66.1%)

Outer South Western Sydney (66.9%)


Sydn

ey R

egio

ns


RESIDENTIAL MBS

14 OCTOBER 18, 2012


Exhibit 18 reveals that delinquencies in Sydney are higher in areas which are further away from the city centre. The trend is explained by the fact that less affluent home buyers are priced out of the more desirable regions, which are typically closer to the city centre. They therefore buy relatively lower value homes further away from the city centre, and have less equity in their homes.

EXHIBIT 18

Sydney, 30-Plus Day Regional Delinquencies from 2010–12 March 2010

June 2011

May 2012


LEGEND



Poor 2% to 2.5%


Good 1% to 1.5%

Very Good 0% to 1%

Around Sydney the regions with the highest 30-plus day delinquencies are Outer Western Sydney (3.19%) and Central Cost (3.02%). They were also the highest in the country. Other regions performing very poorly were North Western Sydney(2.91%), Fairfield-Liverpool (2.62%) and Illawarra (2.55%). The three regions with the lowest 30-plus days delinquencies are Lower Northern Sydney (0.80%), Inner Sydney (1.22%) and Eastern Suburbs (1.23%).

RESIDENTIAL MBS

15 OCTOBER 18, 2012


Melbourne – 30-Plus Day Delinquencies

Of the major capital cities, Melbourne, along with Adelaide, has the lowest delinquency rate, of 1.5%.

Exhibit 19 shows very little change in delinquencies in the Melbourne region, up 0.1%, from last year. Seven of the 11 regions remain in the same performance category.

EXHIBIT 19

Melbourne 30-Plus Day Delinquencies from 2010– 12


Melbourne Regions 2010 2011 2012

North Western Melbourne 1.28% 2.10% 2.21%

Outer Western Melbourne 1.25% 1.50% 1.91%

Mornington Peninsula 1.41% 1.85% 1.78%

South Eastern Melbourne 1.53% 1.84% 1.77%

Barwon-Western District 1.05% 1.51% 1.56%

All Gippsland 1.31% 1.19% 1.53%

North Eastern Melbourne 0.95% 1.43% 1.28%

Outer Eastern Melbourne 0.95% 1.23% 1.22%

Inner Melbourne 0.50% 0.92% 1.13%

Southern Melbourne 0.60% 1.16% 1.10%

Inner Eastern Melbourne 0.91% 1.00% 1.02%

Melbourne Weighted Average 1.10% 1.40% 1.50%



Exhibit 20 shows that in Melbourne, borrower equity is a stronger driver of delinquencies than house price declines.

EXHIBIT 20

Melbourne Regional LTV Versus Changes in House Prices from May 2011 to May 2012


As of May 2012 the median house price in Melbourne was AUD517,000.

-15% -10% -5% 0% 5% 10% 15%

Inner Eastern Melbourne (56.1%)

Southern Melbourne (56.3%)

Inner Melbourne (59.4%)

North Eastern Melbourne (60.1%)

Outer Eastern Melbourne (61.7%)

Mornington Peninsula (62.4%)

Barwon-Western District (62.8%)

All Gippsland (63.5%)

North Western Melbourne (64.2%)

Outer Western Melbourne (64.8%)

South Eastern Melbourne (65.5%)

House Price Movements

Mel

bour

ne R

egio

ns


RESIDENTIAL MBS

16 OCTOBER 18, 2012


Exhibit 21 shows changes in Melbourne’s regional delinquencies. Delinquencies tend to be relatively higher, the further away the region is from the city centre.

EXHIBIT 21

Melbourne, 30-Plus Day Regional Delinquencies from 2010-12 March 2010

June 2011

May 2012


LEGEND



Poor 2% to 2.5%


Good 1% to 1.5%

Very Good 0% to 1%

Around Melbourne the regions with the highest 30-plus day delinquencies are Goulbourn-Ovens-Murray (2.31%) and North Western Melbourne (2.21%). The three regions with the lowest 30-plus days delinquencies are Inner Eastern Melbourne (1.02%), Central Highlands-Wimmera (1.09%) and Southern Melbourne (1.10%).

RESIDENTIAL MBS

17 OCTOBER 18, 2012


Brisbane – 30-Plus Day Delinquencies

Despite a decline in delinquencies of 18 basis points, Brisbane, along with Sydney, has the highest 30-plus day delinquencies, at 2%.

EXHIBIT 22

Brisbane 30-Plus Day Delinquencies from 2010-12


Brisbane Regions 2010 2011 2012

Gold Coast 1.57% 3.11% 2.86%

Ipswich City 1.39% 2.37% 2.53%

Sunshine Coast 1.84% 2.68% 2.48%

South and East BSD Balance 1.28% 2.33% 2.17%

North BSD Balance 1.31% 2.22% 1.76%

Brisbane City Outer Ring 0.94% 1.42% 1.39%

Brisbane City Inner Ring 0.60% 1.27% 0.96%

Brisbane Weighted Average 1.28% 2.20% 2.02%



Although not as striking as in Sydney and Melbourne, Exhibit 23 shows that in Brisbane, house price declines are also not the prime driver in predicting relative delinquencies.

EXHIBIT 23

Brisbane LTV Versus Changes in House Prices from May 2011 to May 2012

Source: Moody’s Investors Service, RP Data

As of May 2012 the median house price in Brisbane was AUD438,000.

-15% -10% -5% 0% 5% 10% 15%

Brisbane City Inner Ring (58.7%)

Sunshine Coast (59.8%)

Brisbane City Outer Ring (60.3%)

South and East BSD Balance (63.3%)

North BSD Balance (64.6%)

Gold Coast (65%)

Ipswich City (67.2%)

House Price Movement

Brisb

ane

Regi

ons


RESIDENTIAL MBS

18 OCTOBER 18, 2012


Exhibit 24 shows changes in Brisbane’s regional delinquencies. Delinquencies tend to be relatively higher, the further away the region is from the city centre.

EXHIBIT 24

Brisbane 30-Plus Day Delinquencies from 2010–12 March 2010

June 2011

May 2012


LEGEND



Poor 2% to 2.5%


Good 1% to 1.5%

Very Good 0% to 1%

Around Brisbane the regions with the highest 30-plus day delinquencies are West Morton (3.00%), also the third highest in the country, Gold Coast (2.86%) and Ipswich City (2.53%). The two regions with the lowest 30-plus days delinquencies are Brisbane City Inner Ring (0.96%) and Brisbane City Outer Ring (1.39%).

RESIDENTIAL MBS

19 OCTOBER 18, 2012


Perth – 30-Plus Day Delinquencies

Despite a decline in delinquencies of 33 basis points, Perth is the third worst-performing major city, with a 1.7% delinquency rate, behind Brisbane and Sydney, which both have a 30-plus day delinquency rate of 2%.

EXHIBIT 25

Perth 30-Plus Day Delinquencies from 2010-12


Perth Regions 2010 2011 2012

Lower Western WA 2.00% 2.78% 2.57%

South West Metropolitan 1.59% 2.44% 2.16%

East Metropolitan 1.50% 2.04% 1.82%

North Metropolitan 1.34% 1.94% 1.65%

South East Metropolitan 1.38% 2.02% 1.49%

Central Metropolitan 0.39% 1.29% 0.88%

Perth Weighted Average 1.37% 2.09% 1.76%



Exhibit 26 shows that in Perth, just like in all other Australian cities, borrower equity is a stronger driver of delinquencies than house price declines.

EXHIBIT 26

Perth LTV Versus Changes in House Prices from May 2011 to May 2012


As of May 2012, the median house price in Perth was AUD475,000.

-15% -10% -5% 0% 5% 10% 15%

Central Metropolitan (52.8%)

North Metropolitan (58.8%)

East Metropolitan (59.8%)

South West Metropolitan (59.8%)

Lower Western WA (59.9%)

South East Metropolitan (60.6%)

House Price Movements

Pert

h Re

gion

s


RESIDENTIAL MBS

20 OCTOBER 18, 2012


Exhibit 27 shows changes in Perth’s regional delinquencies. Delinquencies tend to be relatively higher, the further away the region is from the city centre.

EXHIBIT 27

Perth 30-Plus Day Delinquencies from 2010–12 March 2010

June 2011

May 2012


LEGEND



Poor 2% to 2.5%


Good 1% to 1.5%

Very Good 0% to 1%

Around Perth the region with the highest 30-plus day delinquencies is Lower Western WA (2.57%). The region with the lowest 30-plus days delinquencies is Central Metropolitan (0.88%).

RESIDENTIAL MBS

21 OCTOBER 18, 2012


Adelaide – 30-Plus Day Delinquencies

Despite an increase in delinquencies of 10 basis points, Adelaide, along with Melbourne, has the lowest delinquency rate of the major cities, at 1.5%. All of Adelaide’s regions are performing either satisfactorily or better.

EXHIBIT 28

Adelaide 30-Plus Day Delinquencies from 2010–12


Adelaide Regions 2010 2011 2012

Northern Adelaide 1.28% 1.73% 1.82%

Western Adelaide 0.98% 1.19% 1.55%

Eastern Adelaide 0.66% 1.41% 1.52%

Southern Adelaide 0.74% 0.98% 1.22%

Adelaide Weighted Average 0.92% 1.33% 1.53%



Because of the low number of data points and relatively uniformed delinquency performance, it is not clear from Exhibit 29 that borrower equity is a stronger driver of delinquencies than house price declines.

EXHIBIT 29

Adelaide LTV Versus Changes in House Prices from May 2011 to May 2012

Source: Moody’s Investors Service, RP Data

As of May 2012, the median house price in Adelaide was AUD385,000.

-15% -10% -5% 0% 5% 10% 15%

Western Adelaide (59.7%)

Eastern Adelaide (57.3%)

Southern Adelaide (60.4%)

Northern Adelaide (63.4%)


Adel

aide

Reg

ions


RESIDENTIAL MBS

22 OCTOBER 18, 2012


Exhibit 30 shows changes in Adelaide’s regional delinquencies. Delinquencies tend to be relatively higher, the further away the region is from the city centre.

EXHIBIT 30

Adelaide 30-Plus Day Delinquencies March 2010

June 2011

May 2012


LEGEND



Poor 2% to 2.5%


Good 1% to 1.5%

Very Good 0% to 1%

Around Adelaide the region with the highest 30-plus day delinquencies is Southern and Eastern SA (2.09%). The region with the lowest 30-plus days delinquencies is Southern Adelaide (0.88%).

RESIDENTIAL MBS

23 OCTOBER 18, 2012


Appendix A: Delinquency Reference Sheet

The table below lists the regions by their 30-plus day delinquency rate, from the highest proportions of arrears to the lowest. It also shows the weighted average LTV for each region. The higher LTV regions tend to be at the top of the list.

The table below is available for download (in Excel format) here.

30-Plus Day Delinquency Ranking 30-Plus Day Delinquencies

Region State City 2010 2011 2012 2010 2011 2012 Weighted

Average LTV

Outer South Western Sydney NSW Sydney 2 6 1 2.55% 2.85% 3.19% 66.86%

Central Coast NSW Sydney 4 2 2 2.33% 3.14% 3.02% 66.00%

West Moreton QLD Regional 13 21 3 1.78% 2.22% 3.00% 61.77%

North Western Sydney NSW Sydney 3 5 4 2.37% 2.97% 2.91% 66.10%

Gold Coast QLD Brisbane 19 3 5 1.57% 3.11% 2.86% 65.00%

Fairfield-Liverpool NSW Sydney 1 1 6 2.77% 3.15% 2.62% 64.03%

Lower Western WA WA Perth 7 8 7 2.00% 2.78% 2.57% 59.93%

Illawarra NSW Sydney 12 24 8 1.82% 2.19% 2.55% 61.82%

Ipswich City QLD Brisbane 28 15 9 1.39% 2.37% 2.53% 67.24%

Sunshine Coast QLD Brisbane 11 10 10 1.84% 2.68% 2.48% 59.77%

Central West NSW Regional 8 14 11 1.98% 2.41% 2.48% 64.34%

Canterbury-Bankstown NSW Sydney 6 16 12 2.05% 2.34% 2.36% 62.19%

Richmond-Tweed NSW Regional 31 23 13 1.37% 2.20% 2.35% 60.17%

Goulburn-Ovens-Murray VIC Regional 43 39 14 1.22% 1.67% 2.31% 64.28%

Far North QLD Regional 20 11 15 1.56% 2.59% 2.27% 64.71%

Mid-North Coast NSW Regional 10 22 16 1.86% 2.22% 2.27% 61.53%

Remainder - Balance WA WA Regional 18 13 17 1.59% 2.41% 2.25% 60.88%

Hunter NSW Sydney 5 7 18 2.05% 2.80% 2.25% 64.86%

North Western Melbourne VIC Melbourne 37 26 19 1.28% 2.10% 2.21% 64.23%

Murray-Murrumbidgee NSW Regional 14 38 20 1.72% 1.70% 2.17% 65.42%

South and East BSD Balance QLD Brisbane 39 17 21 1.28% 2.33% 2.17% 63.33%

South West Metropolitan WA Perth 17 12 22 1.59% 2.44% 2.16% 59.85%

Northern-North West QLD Regional 21 19 23 1.54% 2.28% 2.15% 62.59%

Far West-North Western NSW Regional 9 9 24 1.93% 2.78% 2.13% 64.74%

Southern and Eastern SA SA Regional 44 35 25 1.15% 1.79% 2.09% 61.02%

Wide Bay-Burnett QLD Regional 16 4 26 1.65% 3.00% 1.91% 62.26%

Outer Western Melbourne VIC Melbourne 40 44 27 1.25% 1.50% 1.91% 64.81%

Northern NSW Regional 26 33 28 1.45% 1.84% 1.82% 63.53%

Northern Adelaide SA Adelaide 38 37 29 1.28% 1.73% 1.82% 63.35%

East Metropolitan WA Perth 24 27 30 1.50% 2.04% 1.82% 59.84%

Mornington Peninsula VIC Melbourne 27 31 31 1.41% 1.85% 1.78% 62.43%

South Eastern Melbourne VIC Melbourne 23 32 32 1.53% 1.84% 1.77% 65.51%

North BSD Balance QLD Brisbane 35 20 33 1.31% 2.22% 1.76% 64.59%

Central Western Sydney NSW Sydney 15 18 34 1.68% 2.29% 1.75% 64.74%

Northern Beaches NSW Sydney 49 51 35 0.99% 1.38% 1.70% 56.08%

Loddon-Mallee VIC Regional 52 42 36 0.97% 1.58% 1.70% 63.52%

St George-Sutherland NSW Sydney 33 30 37 1.32% 1.94% 1.67% 58.48%

North Metropolitan WA Perth 32 29 38 1.34% 1.94% 1.65% 58.81%


RESIDENTIAL MBS

24 OCTOBER 18, 2012


30-Plus Day Delinquency Ranking 30-Plus Day Delinquencies

Region State City 2010 2011 2012 2010 2011 2012 Weighted

Average LTV

Darling Downs-South West QLD Regional 22 36 39 1.53% 1.74% 1.60% 62.18%

Mackay-Fitzroy-Central West QLD Regional 25 41 40 1.47% 1.60% 1.57% 62.35%

Barwon-Western District VIC Melbourne 47 43 41 1.05% 1.51% 1.56% 62.78%

Western Adelaide SA Adelaide 50 56 42 0.98% 1.19% 1.55% 59.71%

All Gippsland VIC Melbourne 34 55 43 1.31% 1.19% 1.53% 63.48%

Central Northern Sydney NSW Sydney 36 45 44 1.29% 1.49% 1.52% 58.05%

Eastern Adelaide SA Adelaide 58 50 45 0.66% 1.41% 1.52% 57.28%

South East Metropolitan WA Perth 29 28 46 1.38% 2.02% 1.49% 60.59%

Tasmania TAS Regional 46 40 47 1.05% 1.60% 1.47% 62.68%

South Eastern NSW Regional 42 47 48 1.24% 1.44% 1.46% 61.99%

Brisbane City Outer Ring QLD Brisbane 55 49 49 0.94% 1.42% 1.39% 60.29%

North Eastern Melbourne VIC Melbourne 53 48 50 0.95% 1.43% 1.28% 60.07%

Inner Western Sydney NSW Sydney 51 46 51 0.98% 1.47% 1.26% 57.99%

Eastern Suburbs NSW Sydney 45 59 52 1.07% 1.05% 1.23% 55.52%

Outer Eastern Melbourne VIC Melbourne 54 54 53 0.95% 1.23% 1.22% 61.67%

Southern Adelaide SA Adelaide 57 62 54 0.74% 0.98% 1.22% 60.43%

Inner Sydney NSW Sydney 48 57 55 0.99% 1.17% 1.22% 60.33%

Inner Melbourne VIC Melbourne 64 63 56 0.50% 0.92% 1.13% 59.44%

Northern and Western SA SA Regional 41 34 57 1.24% 1.80% 1.13% 61.95%

Southern Melbourne VIC Melbourne 60 58 58 0.60% 1.16% 1.10% 56.33%

Central Highlands-Wimmera VIC Regional 30 25 59 1.38% 2.11% 1.09% 65.12%

Inner Eastern Melbourne VIC Melbourne 56 61 60 0.91% 1.00% 1.02% 56.11%

Brisbane City Inner Ring QLD Brisbane 59 53 61 0.60% 1.27% 0.96% 58.67%

Central Metropolitan WA Perth 65 52 62 0.39% 1.29% 0.88% 52.82%

Australian Capital Territory ACT Regional 62 60 63 0.57% 1.00% 0.84% 61.53%

Lower Northern Sydney NSW Sydney 63 65 64 0.54% 0.59% 0.80% 56.18%

Northern Territory NT Regional 61 64 65 0.57% 0.92% 0.69% 61.10%


RESIDENTIAL MBS

25 OCTOBER 18, 2012


Appendix B: Regional Profiles

Within each region, without exception, the weighted average LTV ratio and average loan amounts are greater for 30-plus day delinquent loans than for all other borrowers in the same region.

For example, in All Gippsland, borrowers have a weighted average LTV ratio of 63.48% and an average loan balance of AUD125,274. Those who are 30-plus days delinquent have an LTV ratio of 71.96% and a loan balance of AUD150,893.


All Loans 30-Plus Day Delinquencies 90-Plus Day Delinquencies

Region State

Current Weighted

Average LTV

Average Loan

Balance

Weighted Average

Seasoning

Current Weighted

Average LTV

Average Loan

Balance

Weighted Average

Seasoning

Current Weighted

Average LTV

Average Loan

Balance

Weighted Average

Seasoning

All Gippsland VIC 63.48% $125,274 55 71.96% $150,893 61.44 75.09% $158,670 56.80

Australian Capital Territory ACT 61.53% $175,195 58 75.33% $232,762 63.30 78.88% $184,880 63.55

Barwon-Western District VIC 62.78% $142,096 57 75.76% $183,038 61.14 86.91% $192,812 68.30

Brisbane City Inner Ring QLD 58.67% $212,836 59 68.79% $350,626 58.75 71.52% $389,215 60.21

Brisbane City Outer Ring QLD 60.29% $182,328 58 73.01% $293,247 58.54 75.08% $288,167 61.39

Canterbury-Bankstown NSW 62.19% $192,818 64 79.73% $321,718 75.15 88.81% $351,635 81.86

Central Coast NSW 66.00% $184,285 68 80.98% $278,713 74.76 87.04% $276,320 76.78

Central Highlands-Wimmera VIC 65.12% $121,536 55 78.79% $158,662 62.30 84.95% $150,075 59.78

Central Metropolitan WA 52.82% $228,891 57 76.66% $471,641 55.83 80.97% $537,108 59.30

Central Northern Sydney NSW 58.05% $238,324 65 75.70% $405,101 70.36 81.28% $433,329 73.65

Central West NSW 64.34% $131,724 66 76.50% $164,180 77.00 80.28% $171,958 75.62

Central Western Sydney NSW 64.74% $196,874 63 78.98% $299,468 76.24 81.76% $277,249 79.95

Darling Downs-South West QLD 62.18% $133,350 58 77.70% $194,584 61.34 82.07% $203,106 67.78

East Metropolitan WA 59.84% $180,285 55 73.71% $293,694 56.27 78.40% $286,903 57.20

Eastern Adelaide SA 57.28% $164,044 62 71.60% $277,283 69.20 73.43% $332,119 70.81

Eastern Suburbs NSW 55.52% $263,846 65 66.44% $435,940 85.31 69.28% $442,601 89.89

Fairfield-Liverpool NSW 64.03% $183,870 68 77.13% $288,271 76.19 78.68% $323,630 79.90

Far North QLD 64.71% $162,958 60 81.84% $247,379 67.27 87.24% $273,065 70.53

Far West-North Western NSW 64.74% $119,123 61 78.31% $138,130 67.01 84.84% $119,962 60.32

Gold Coast QLD 65.00% $208,652 60 74.20% $327,453 64.15 76.75% $335,128 63.66

Goulburn-Ovens-Murray VIC 64.28% $125,085 60 76.01% $186,485 63.76 82.28% $187,442 62.20

Hunter NSW 64.86% $168,949 62 81.05% $234,163 69.84 84.68% $252,426 70.21

Illawarra NSW 61.82% $171,962 66 74.20% $275,095 72.54 78.55% $305,302 75.53

Inner Eastern Melbourne VIC 56.11% $202,462 57 82.22% $315,594 61.32 92.50% $345,449 62.20

Inner Melbourne VIC 59.44% $222,339 59 67.39% $344,397 55.63 62.57% $301,692 59.21

Inner Sydney NSW 60.33% $233,009 65 71.10% $388,771 74.93 72.78% $410,083 79.94

Inner Western Sydney NSW 57.99% $237,539 64 69.63% $372,331 75.64 69.12% $273,141 99.67

Ipswich City QLD 67.24% $161,997 58 78.47% $220,025 59.52 82.54% $215,624 57.04

Loddon-Mallee VIC 63.52% $119,830 61 75.65% $160,440 65.39 80.61% $139,213 69.63

Lower Northern Sydney NSW 56.18% $241,549 65 65.76% $377,924 72.12 63.88% $399,362 73.53

Lower Western WA WA 59.93% $172,793 57 76.58% $282,993 59.22 81.20% $304,845 59.30

Mackay-Fitzroy-Central West QLD 62.35% $171,596 55 74.34% $246,168 56.65 78.36% $263,172 58.99

Mid-North Coast NSW 61.53% $145,561 64 75.74% $205,385 74.90 80.18% $202,171 81.95

Mornington Peninsula VIC 62.43% $163,242 56 71.69% $201,487 68.06 76.28% $204,581 72.48

Murray-Murrumbidgee NSW 65.42% $125,286 61 78.29% $160,670 63.92 79.06% $175,370 69.39

North BSD Balance QLD 64.59% $182,366 55 75.11% $262,577 60.70 79.05% $260,515 58.78

North Eastern Melbourne VIC 60.07% $173,803 55 73.43% $251,295 60.82 69.36% $257,002 66.16

North Metropolitan WA 58.81% $195,955 55 73.33% $270,687 59.59 78.20% $271,472 62.77


RESIDENTIAL MBS

26 OCTOBER 18, 2012


All Loans 30-Plus Day Delinquencies 90-Plus Day Delinquencies

Region State

Current Weighted

Average LTV

Average Loan

Balance

Weighted Average

Seasoning

Current Weighted

Average LTV

Average Loan

Balance

Weighted Average

Seasoning

Current Weighted

Average LTV

Average Loan

Balance

Weighted Average

Seasoning

North Western Melbourne VIC 64.23% $171,011 55 79.20% $246,688 58.76 83.64% $258,614 62.92

North Western Sydney NSW 66.10% $183,772 69 81.17% $282,051 73.87 83.69% $293,512 74.79

Northern NSW 63.53% $123,689 61 71.95% $175,527 62.05 71.30% $175,034 77.27

Northern Adelaide SA 63.35% $134,251 61 74.96% $171,648 66.17 77.20% $155,018 67.76

Northern and Western SA SA 61.95% $110,374 62 79.45% $181,788 52.41 83.78% $255,829 53.42

Northern Beaches NSW 56.08% $258,978 65 71.01% $467,333 75.33 69.75% $423,326 88.69

Northern Territory NT 61.10% $188,535 52 71.50% $213,434 53.86 72.24% $197,426 57.60

Northern-North West QLD 62.59% $169,025 56 72.55% $242,351 56.65 73.65% $264,595 55.56

Outer Eastern Melbourne VIC 61.67% $159,279 57 75.65% $211,540 60.42 83.56% $243,310 56.56

Outer South Western Sydney NSW 66.86% $183,030 70 79.15% $276,277 76.85 82.87% $284,432 79.27

Outer Western Melbourne VIC 64.81% $173,716 54 76.93% $242,048 55.49 79.66% $228,817 61.01

Remainder - Balance WA WA 60.88% $172,950 53 73.41% $213,755 56.37 75.85% $209,168 62.16

Richmond-Tweed NSW 60.17% $171,670 61 74.45% $292,102 66.35 80.69% $328,039 70.21

South and East BSD Balance QLD 63.33% $176,042 58 78.36% $255,547 61.34 85.37% $253,081 65.41

South East Metropolitan WA 60.59% $180,526 55 75.01% $232,307 62.02 79.49% $250,104 62.47

South Eastern NSW 61.99% $153,852 62 77.30% $199,716 74.44 82.73% $192,419 72.27

South Eastern Melbourne VIC 65.51% $166,200 53 77.91% $230,101 61.12 82.90% $234,754 61.60

South West Metropolitan WA 59.85% $192,506 56 76.21% $280,637 56.48 77.91% $287,347 53.48

Southern Adelaide SA 60.43% $144,027 60 73.00% $189,676 64.37 72.18% $165,556 70.35

Southern and Eastern SA SA 61.02% $126,195 64 73.05% $171,080 67.23 75.11% $169,154 68.21

Southern Melbourne VIC 56.33% $208,913 57 75.50% $327,603 62.37 92.39% $317,536 64.83

St George-Sutherland NSW 58.48% $212,379 65 72.99% $375,280 73.95 74.36% $370,213 79.23

Sunshine Coast QLD 59.77% $194,805 59 73.17% $338,371 64.36 76.63% $385,793 67.57

Tasmania TAS 62.68% $125,228 53 83.76% $167,477 55.66 96.92% $151,928 62.58

West Moreton QLD 61.77% $165,288 56 74.35% $251,431 58.03 79.05% $239,535 65.93

Western Adelaide SA 59.71% $150,035 61 76.38% $219,315 64.03 83.27% $223,655 67.20

Wide Bay-Burnett QLD 62.26% $137,237 59 71.84% $204,552 61.27 80.30% $220,989 62.48


RESIDENTIAL MBS

27 OCTOBER 18, 2012


Appendix C: Regional Shares of Total Delinquencies

We measure a region’s share of total delinquencies by dividing the balance of all 30-plus day delinquent loans in the region by the balance of all 30-plus day delinquent loans for the country. We then categorize them as follows:

LEGEND

Performance 30-Plus Delinquencies

Very Poor 4% or greater

Poor 3% to 4%

Satisfactory 2% to 3%

Good 1% to 2%

Very Good 0% to 1%

6.74% of all delinquent loans in Australia are in the Gold Coast.

The Gold Coast and North Western Sydney constitute 12.45% of all delinquent loans in Australia.


Region State 2010 2011 2012 Change 2010 2011 2012 Change

Gold Coast QLD 2 1 1 -1 4.45% 6.93% 6.74% -0.19%

North Western Sydney NSW 1 2 2 1 6.48% 5.45% 5.71% 0.26%

Outer Western Melbourne VIC 7 12 3 -4 2.88% 2.44% 3.48% 1.04%

Brisbane City Outer Ring QLD 11 4 4 -7 2.65% 3.17% 3.25% 0.08%

Fairfield-Liverpool NSW 3 3 5 2 4.24% 3.22% 2.99% -0.23%

Central Coast NSW 5 7 6 1 2.92% 2.77% 2.79% 0.02%

Central Northern Sydney NSW 4 10 7 3 3.18% 2.55% 2.67% 0.12%

Sunshine Coast QLD 17 9 8 -9 2.24% 2.60% 2.53% -0.07%

Outer South Western Sydney NSW 8 15 9 1 2.86% 2.14% 2.52% 0.38%

North Metropolitan WA 6 5 10 4 2.92% 2.93% 2.49% -0.44%

South and East BSD Balance QLD 22 13 11 -11 1.65% 2.44% 2.48% 0.04%

St George-Sutherland NSW 10 6 12 2 2.80% 2.82% 2.42% -0.40%

Hunter NSW 9 8 13 4 2.83% 2.75% 2.32% -0.43%

Illawarra NSW 14 18 14 0 2.35% 1.92% 2.19% 0.27%

South Eastern Melbourne VIC 16 19 15 -1 2.25% 1.92% 2.15% 0.23%

South West Metropolitan WA 15 11 16 1 2.28% 2.48% 2.08% -0.40%

Canterbury-Bankstown NSW 13 20 17 4 2.35% 1.89% 2.06% 0.17%

North BSD Balance QLD 25 16 18 -7 1.51% 2.12% 1.83% -0.29%

Central Western Sydney NSW 12 14 19 7 2.38% 2.19% 1.83% -0.36%

Lower Western WA WA 20 21 20 0 1.88% 1.86% 1.70% -0.16%

Inner Sydney NSW 19 22 21 2 2.04% 1.65% 1.69% 0.04%

North Western Melbourne VIC 32 29 22 -10 1.27% 1.41% 1.66% 0.25%

Northern Beaches NSW 29 31 23 -6 1.34% 1.31% 1.62% 0.31%

Northern Adelaide SA 23 27 24 1 1.60% 1.44% 1.61% 0.17%

South East Metropolitan WA 18 17 25 7 2.04% 2.09% 1.54% -0.55%

Far North QLD 34 26 26 -8 1.13% 1.48% 1.44% -0.04%

Inner Eastern Melbourne VIC 21 30 27 6 1.86% 1.39% 1.40% 0.01%

East Metropolitan WA 24 24 28 4 1.57% 1.54% 1.37% -0.17%

Ipswich City QLD 44 34 29 -15 0.88% 1.22% 1.37% 0.15%


RESIDENTIAL MBS

28 OCTOBER 18, 2012


Region State 2010 2011 2012 Change 2010 2011 2012 Change

North Eastern Melbourne VIC 28 28 30 2 1.38% 1.43% 1.34% -0.09%

Mackay-Fitzroy-Central West QLD 26 33 31 5 1.43% 1.25% 1.28% 0.03%

Northern-North West QLD 38 35 32 -6 1.02% 1.21% 1.25% 0.04%

Mornington Peninsula VIC 30 37 33 3 1.32% 1.20% 1.23% 0.03%

Outer Eastern Melbourne VIC 31 38 34 3 1.32% 1.16% 1.22% 0.06%

Barwon-Western District VIC 33 36 35 2 1.15% 1.20% 1.22% 0.02%

Brisbane City Inner Ring QLD 39 23 36 -3 0.98% 1.62% 1.18% -0.44%

Inner Melbourne VIC 50 44 37 -13 0.70% 0.89% 1.10% 0.21%

Eastern Suburbs NSW 27 42 38 11 1.41% 0.96% 1.09% 0.13%

Richmond-Tweed NSW 46 43 39 -7 0.81% 0.94% 1.08% 0.14%

Southern Melbourne VIC 45 39 40 -5 0.84% 1.11% 1.07% -0.04%

Wide Bay-Burnett QLD 37 25 41 4 1.02% 1.53% 1.03% -0.50%

Southern Adelaide SA 43 48 42 -1 0.89% 0.79% 1.01% 0.22%

Goulburn-Ovens-Murray VIC 53 51 43 -10 0.67% 0.67% 0.93% 0.26%

Australian Capital Territory ACT 35 32 44 9 1.11% 1.26% 0.93% -0.33%

Lower Northern Sydney NSW 42 50 45 3 0.94% 0.70% 0.93% 0.23%

Eastern Adelaide SA 58 45 46 -12 0.59% 0.85% 0.92% 0.07%

Tasmania TAS 36 40 47 11 1.03% 1.04% 0.88% -0.16%

Mid-North Coast NSW 41 46 48 7 0.95% 0.80% 0.87% 0.07%

Inner Western Sydney NSW 40 41 49 9 0.96% 0.98% 0.84% -0.14%

West Moreton QLD 59 57 50 -9 0.55% 0.53% 0.84% 0.31%

Loddon-Mallee VIC 54 47 51 -3 0.65% 0.79% 0.83% 0.04%

Murray-Murrumbidgee NSW 49 56 52 3 0.76% 0.54% 0.76% 0.22%

Southern and Eastern SA SA 56 53 53 -3 0.60% 0.64% 0.74% 0.10%

Remainder - Balance WA WA 51 49 54 3 0.68% 0.78% 0.74% -0.04%

All Gippsland VIC 48 58 55 7 0.78% 0.52% 0.71% 0.19%

Western Adelaide SA 57 60 56 -1 0.59% 0.48% 0.66% 0.18%

Darling Downs-South West QLD 52 54 57 5 0.67% 0.60% 0.64% 0.04%

South Eastern NSW 47 52 58 11 0.81% 0.66% 0.64% -0.02%

Central West NSW 55 61 59 4 0.60% 0.47% 0.52% 0.05%

Central Metropolitan WA 64 59 60 -4 0.21% 0.51% 0.34% -0.17%

Central Highlands-Wimmera VIC 60 55 61 1 0.54% 0.60% 0.31% -0.29%

Northern NSW 62 64 62 0 0.28% 0.25% 0.28% 0.03%

Far West-North Western NSW 61 63 63 2 0.30% 0.29% 0.26% -0.03%

Northern Territory NT 63 62 64 1 0.27% 0.31% 0.25% -0.06%

Northern and Western SA SA 65 65 65 0 0.20% 0.20% 0.13% -0.07%

Total 100% 100% 100%


RESIDENTIAL MBS

29 OCTOBER 18, 2012


2012

Australia

Sydney

Melbourne

Brisbane

RESIDENTIAL MBS

30 OCTOBER 18, 2012


Appendix D: Location Maps

The following maps help identify cities, towns and suburbs within regions.

Location Map – Australia


RESIDENTIAL MBS

31 OCTOBER 18, 2012


Location Map – New South Wales


RESIDENTIAL MBS

32 OCTOBER 18, 2012


Location Map – Sydney


RESIDENTIAL MBS

33 OCTOBER 18, 2012


Location Map – Victoria


RESIDENTIAL MBS

34 OCTOBER 18, 2012


Location Map – Melbourne


RESIDENTIAL MBS

35 OCTOBER 18, 2012


Location Map – Queensland


RESIDENTIAL MBS

36 OCTOBER 18, 2012


Location Map – Brisbane


RESIDENTIAL MBS

37 OCTOBER 18, 2012


Brisbane Inner


RESIDENTIAL MBS

38 OCTOBER 18, 2012


Location Map – South Australia


RESIDENTIAL MBS

39 OCTOBER 18, 2012


Location Map – Adelaide


RESIDENTIAL MBS

40 OCTOBER 18, 2012


Location Map – Perth and Surrounding Areas


RESIDENTIAL MBS

41 OCTOBER 18, 2012


Location Map – Perth


RESIDENTIAL MBS

42 OCTOBER 18, 2012


Moody’s Related Research

For a more detailed explanation of Moody’s approach to this type of transaction as well as similar transactions please refer to the following reports:

Special Reports: » Australian Mortgage Delinquencies Increasing Despite Mining Boom, September 2011

(SF261533)

» Moody's Regional Approach to Mortgage Delinquencies in Australia, October 2010 (SF208752)

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients.

Moody’s publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.






RESIDENTIAL MBS

43 OCTOBER 18, 2012


» contacts continued from page 1

MOODY'S CLIENT SERVICES: New York: +1.212.553.1653 Tokyo: +81.3.5408.4100 London: +44.20.7772.5454 Hong Kong: +852.3551.3077 Sydney: +612.9270.8100 Singapore: +65.6398.8308

ADDITIONAL CONTACTS: Website: www.moodys.com

Report Number: SF298592

© 2012 Moody’s Investors Service, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. (“MIS”) AND ITS AFFILIATES ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY’S (“MOODY’S PUBLICATIONS”) MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

MIS, a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Any publication into Australia of this document is by MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657, which holds Australian Financial Services License no. 336969. This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001.

Notwithstanding the foregoing, credit ratings assigned on and after October 1, 2010 by Moody’s Japan K.K. (“MJKK”) are MJKK’s current opinions of the relative future credit risk of entities, credit commitments, or debt or debt-like securities. In such a case, “MIS” in the foregoing statements shall be deemed to be replaced with “MJKK”. MJKK is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO.

This credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be dangerous for retail investors to make any investment decision based on this credit rating. If in doubt you should contact your financial or other professional adviser.

http://www.moodys.com/�

http://www.moodys.com/�