Now itâs Australiaâs turn. Moodyâs said Monday that it may downgrade A$83bn ($75.5bn) worth of Australian mortgage-backed debt, in the latest spillover from the US subprime crisis, reports Reuters. Moodyâs said it had taken the action after placing US bond insurer PMI Mortgage Insurance on watch for a possible downgrade following rising loan losses in the US. As PMI has an Australian operation that guarantees residential mortgage-backed securities, some 325 tranches from 144 Australian issues were automatically put on watch, says Reuters. While the action was not seen as an indicator of rising risk in the Australian RMBS market, which has never seen a default, it could scare away already skittish investors. Australia has the worldâs fourth largest RMBS market, with total outstanding issues of A$173bn. The real level of loans in arrears in Australia actually fell marginally in October, notes Reuters, citing the latest S&P figures. Loans with arrears greater than 30 days were a tiny 1.04 per cent in October, according to S&P. Unlike in the UK or the US, Australian prime RMBS are insured by mortgage insurers, giving investors greater security but also a lower return. Moodyâs said the review would take up to three months. Australian government data out Monday showed house prices in Australiaâs major cities rose by 12.3 per cent in 2007, in contrast to the US where prices are falling at record rates, adds Reuters. PMI is one of two major mortgage insurers in Australia. Genworth Financial Mortgage Insurance, whose Aa2 ratings were affirmed by Moodyâs last week, is the other. Moodyâs said there was a very small likelihood that PMI would default on its debt and, notes Reuters, that any ratings downgrade âdid not necessarily meanâ investors would lose money. http://ftalphaville.ft.com/blog/2008/02/04/10678/moodys-warns-on-75bn-of-australian-rmbs/