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The global financial crisis hit the Australian securitisation market hard. And although sentiment is improving, the market still has some way to go before activity returns to close to pre-crisis levels – prompting the peak industry body to call on the government to continue its support to see the market through this challenging period.
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Investors have largley stayed away from the residential mortgage backed securities market (RMBS) since the crisis hit, mainly due to concerns over rising levels of mortgage arrears and the freezing of the global credit markets.
But the past few months have seen sentiment improve, and investors are cautiously returning off the back of better than expected credit quality and high-yielding returns.
In September, ME Bank issued $276 million in RMBS followed by a further $500 million – the first public issues without government support since the collapse of Lehman Brothers last year.
Federal Treasurer Wayne Swan described it as a “positive development” for the securitisation market. And indeed, it suggests investors are now confident enough to buy “normal” market-risk Australian prime mortgages without the government safety-net.
The market has of course had the benefit of the federal government’s support over the last 12 months in the form of an $8 billion injection.
But that $8 billion is now all but exhausted, with around $7.4 billion having been invested across 17 residential mortgage backed securities since September last year.
The Australian Securitisation Forum (ASF) deputy chairman Patrick Tuttle says the ASF has made it clear to the government that it needs to invest more funds in RMBS to sustain and revitalise the commercial property market and maintain competition.
“We are aware the government’s $8 billion support program is coming to an end and we believe the next step would be for them to issue a package of options including a government guarantee over RMBS as well as continued government purchases of RMBS to stimulate liquidity,” says Mr Tuttle.
Mr Tuttle says through a guarantee, the government could control the quality of eligible assets and provide a fee structure consistent with the current arrangements for guaranteeing wholesale funding of Authorised Deposit-taking Institutions (ADIs).
Another option is for the government to modify or extend its Australian Office of Financial Management (AOFM) securitisation program to maintain the base for competitive lending.
Mr Tuttle says the ASF has briefed the government on the available options including covered bonds and adjusting eligible collateral, so they “know what’s on the table”.
“All that remains now is for them to make a decision,” he says.
Amid the securitisation debate, there has also been talk that the non-bank sector could be in line for a cash injection from the superannuation funds industry. But whether the government will step in to support the sector is still a matter of speculation.
