China's property market may be troubled, but its lack of mortgage securities allowed it to skirt one of the systemic causes of the U.S. property crash, until now.
Postal Savings Bank of China (PSB) last month issued the mainland's first residential mortgage backed security (RMBS) since 2007, wrapping more than 23,000 mortgages totaling around 6.81 billion yuan ($1.1 billion) into a security. PSB didn't immediately return an email seeking comment.
But comparisons with the U.S. RMBS which became a global albatross from 2007, taking down property values as well as financial institutions across the world, may be premature.
"The concerns in the U.S. RMBS were mainly related to the subprime RMBS," said Jerome Cheng, senior vice president at Moody's Investor Service. "There are not subprime mortgages in China at the moment," he added.
Not only does PSB's RMBS have a weighted loan-to-value of around 61 percent, but it also excludes "liar's loans," or mortgages without documentation of the buyer's income or credit history, through the underwriting process, Cheng noted.