MPA asked industry pundits what measures they think government should do to restore the securitisation market and if the $4bn investment in AAA-mortgage-backed securities goes far enough...
Brian Rowe, Director of Iden Group
"It's not enough and they will have to continue to provide this funding for quite awhile. They haven't stated they will do this and they may not want to do it.
Wouldn't it be better for them to get together with super funds and give an enticement for them to buy Aussie RMBS at a lower risk premium? They are buying far safer assets than the current market pricing suggests. If they went back to margins of a year ago and the federal government put some type of guarantee on the bonds then the market could be reliquified.
The government has stated they don't see the need for a Freddie Mac but they want competition and they want the non bank market to be strong. Cocooning the securitisation cycle within Australia at prices we can deal with seems to me to be the way to go. This would help the regional banks and the regular non bank bond issuers to be stronger and to compete better. Default levels in the Australian mortgage market may be on the up, caused by higher interest rates, but mortgage backed bonds remain a very sound investment."
Garry Driscoll, General Manager of Mortgage Ezy
"Yes, I believe it is a very good start. Unfortunately no one can predict what will happen in the current market as it changes every day but with the US passing its "Toxic Loans Bill" the market should start the long road back to normality.
The government is to be commended for this initiative as it will be of great assistance to the average borrower and it will help maintain a strong, competitive home loan industry that will not be dominated by the major banks.
Until the details are announced it is difficult to quantify the full effect and whether $4bn is enough, however, it is far better than the position non-banks were in before the announcement. It is interesting to read some of the comments coming out of the banking sector who are not that pleased about the announcement."
Kim Cannon, Managing Director of FirstMac
"FirstMac does not believe the securitisation market will recover on its own and therefore we strongly recommend industry and government supported initiatives that will ensure short-term and long-term solutions for the liquidity crisis.
Maintaining a healthy securitisation market in the lending sector is critical to protecting competition, as it enables a more diverse range of mortgage lenders who don't have access to funds via retail deposits to compete.
While there has been a lot of media exposure around the impact the current liquidity crisis is having on non-bank lenders, in reality many other financial institutions, such as major and regional banks plus building societies utilise wholesale financing to supplement funding from retail deposits.
As per the Australian Securitisation Forum (ASF), FirstMac supports a special liquidity scheme that gives the Office of Financial Management authorisation to purchase AAA rated RMBS to help free up liquidity in the short-term.
A government-owned funding agency similar to the Canadian one is a long-term solution which we agree with in principal, but there needs to be considerable thought and planning put into structuring a model that suits our business environment. This however will take time and we need action now."
