Russia’s weakening economy could increase mortgage arrears

If a further drop in oil prices exerts downward pressure on Russia’s weakened economy, arrears in structured mortgage deals could accelerate at a faster rate, says Moody’s Investors Service in a special report published recently.

“Russian property values are decreasing significantly in US dollar terms due to the rouble’s devaluation. This will increase the loss severity on defaulting loans denominated in foreign currencies. On the other hand, losses will be more contained for rouble-denominated mortgage loans, owing to low loan-to-value ratios in loan portfolios and stable nominal house prices in rouble terms”, states Maria Divid, an assistant vice president and analyst at Moody’s and co-author of the report.

“The low proportion of US dollar-denominated mortgages alleviates the impact of the rouble’s depreciation on Russia’s housing market. Having said that, macroeconomic pressure may cause borrowers’ real incomes to fall, unemployment may increase and borrowers’ ability to pay their debt will weaken, which may increase mortgage arrears”, explains Ms. Divid.

The new report: “Russian RMBS and ABS Performance Will Deteriorate as the Domestic Economy Weakens”, is available on the Moody’s website.