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The federal government hopes its latest $8 billion injection to the residential mortgage backed securities (RMBS) market will ease the squeeze currently imposed on small businesses but ratings agencies could stand in the way.
Under the first $8 billion program, announced late last year, the government put a 10 per cent cap on the total amount of low doc loans that could be pooled into a securitisation deal.
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The government is now looking to lift this cap in its second injection of funds, but will only make funding available to deals that have a AAA credit rating, according to a report in The Australian Financial Review.
However, ratings agency, Standard & Poor, has said it will be less willing to award AAA credit ratings to securitisations deals with a greater share of low doc loans.
The company’s managing director of structured finance for Asia Pacific, Fabienne Michaux, said self employed borrowers remained a risky investment.
“A smaller proportion of the total debt issued against a low doc portfolio will be rated AAA compared with a full doc portfolio,” Ms Michaux said.
