The outlook for securitisation of non-conforming mortgages - estimated by ratings agency Fitch to be worth A$20 billion - continues to strengthen, following a decision by Standard & Poor's to upgrade the credit rating of one of the oldest such programs in the market.

The A$169 million JEMStone vehicle is managed by ABN Amro but was set up in the early 1990s by former government-owned financier, AIDC, to securitise residential and small-balance commercial loans.

S&P raised the ratings on tranches 2 and 3 on the program by two notches each, from AA to AAA and BBB to single-A, respectively.

The agency described the portfolio's performance as excellent, with no losses to date. Loans greater than 30 days past due had remained below average for mortgage-backed pools, even though the portfolio contained commercial loans, said S&P.

Non-conforming mortgages are those that would not normally be eligible for insurance in the Australian market. S&P took similar action in August on a A$42 million non-conforming portfolio managed by Permanent Custodians Ltd., raising the single-A rating to AA.

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