The Australian government will invest around US$3.06 billion (A$3.4 billion) in Residential Mortgage-Backed Securities, which was sold by five lenders, to stir up home-loan competition.
Liberty Financial Pty Ltd., AMP Ltd., Firstmac Ltd., Resimac Ltd., and Members Equity Bank Pty Ltd. will obtain the aid through serial arrangements, which the Australian Office of Financial Management (AOFM) will invest in mortgage-backed bond sales, according to an e-mailed statement released on Thursday.
In a separate statement, Treasurer Wayne Swan said, “The move 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.”
Smaller lenders, which often used securitization as their source of funds, lost their market shares to the four largest banks in Australia when the US subprime credits collapsed in the global market. The Australian government said in November that it will double its mortgage-backed bonds investment to A$16 billion to tighten up competition.
The serial arrangements will be funded from the A$8 billion extra budget of the government and will be available until December 15.
Lenders other than Westpac Banking Corp., National Australia Bank Ltd., Commonwealth Bank of Australia and Australia & New Zealand Banking Group Ltd. sold over two-thirds of the Australian RMBS as of September 30 last year, said Standard & Poor.
Despite the global credit freeze, the so-called four pillar banks raised their new owner-occupier mortgages market shares to 81 percent in July last year from 60 percent in mid-2007, according to the Reserve Bank of Australia.
The government will only invest on AAA rated, Australian-dollar denominated bond sales, with interest-only loans capped at 50 percent of the initial loan pool, said AOFM in a statement on December 7, when the government called for application from lenders to utilize the serial arrangement plan.