Competition in Australia's mortgage market has today received a fresh boost with five smaller lenders allocated up to $3.4 billion in funding as part of the Government's investment in high-quality residential mortgage-backed securities (RMBS).
On 30 November 2009, I directed the Australian Office of Financial Management (AOFM) to invest up to a further $8 billion in Australian RMBS to support competition in Australia's mortgage market. This investment was in addition to an initial $8 billion investment in 2008 which was vital to ensuring a flow of funds to smaller lenders who have been reliant on securitisation markets to fund mortgage lending.
As part of the Government's second $8 billion investment, the AOFM has today advised five smaller lenders, including three non-bank lenders, that it will invest in a series of separate RMBS issuances by them extending out as far as December 2010.
These parties are Liberty Financial, Resimac, Members Equity Bank, Firstmac and AMP Bank.
It is expected that private investors will also participate significantly in these offerings, following recent encouraging signs of improvement in securitisation markets. The Government's investments to date in RMBS have enabled smaller lenders to lend at competitive interest rates and maintain a higher level of lending than would otherwise have been possible during the global financial crisis.
Today's announcement provides more funding certainty for these smaller lenders and will allow them to keep lending. This will place more competition on the big banks, helping to put downward pressure on mortgage rates over time.
Today's announcement provides for up to $3.4 billion in ‘pipeline' funding – meaning that each of these smaller lenders will have AOFM support for RMBS issuances until up to 15 December this year. This is the first time the AOFM has announced that it will invest in multiple RMBS issuances by each of these smaller lenders. This will mean these lenders will no longer need to submit separate tenders to the AOFM for each proposed issuance, providing greater funding certainty.
The Government's direct investment of up to $16 billion in the RMBS market has been critical to preserving the infrastructure of this important market and is fostering a recovery in private investor confidence.
The Rudd Government's actions have secured our financial system, ensuring that credit has continued to flow to households and businesses during the global financial crisis.
28 January 2010