Home-loan raising done without crisis assistance
Sydney Morning Herald
Wednesday September 9, 2009
PRESSURE on the Federal Government to pump as much as $22 billion of extra liquidity into residential mortgage-backed securities has significantly eased after the first raising of new debt from the market without government backing in almost a year.The issue of a $276 million investment package by ME Bank, the bank back by industry superannuation funds, was a major boost to the recently frozen residential mortgage-backed securities market, previously a significant source of funding for smaller financial institutions and non-bank lenders.The issue was completed without the need for ME Bank to tap the $8 billion fund set up by the Federal Government last October in response to the global financial crisis which jammed credit markets around the world.The crisis fund has been operated by the Australian Office of Financial Management (AOFM) and accessed by a number of specialist mortgage lenders in an effort to maintain competition in the home loan market, now dominated by the big four banks.But with the fund just $500 million from exhaustion, key players in the industry have been pressing the Rudd Government to extend its financial support to the AOFM to as high as $30 billion.One deal, by the Queensland building society Wide Bay in July, soaked up $340 million of AOFM funding and led to the remaining $500 million being reserved for offerings by those lenders who did not have access to deposits from customers.Yesterday's move by ME Bank, which was supported by Westpac, was doubly important because it was significantly oversubscribed, an indication that investors are now confident enough to buy "normal" market-risk Australian prime mortgages without the Government having to step in.Residential mortgage-backed securities are packages of home loans that mortgage providers then sell to investors to raise additional finance to keep their flow of lending going."It's a very early sign but a very good one," said Ali Gray, ANZ Bank's head of debt capital markets, of the success of the issue, the bulk of which was priced 175 basis points (1.75 per cent) above the current rate in short-term money markets.In relation to the Government's position, Ms Gray added: "They would like to see the market stand on its own two feet, and this is a great development."Her comments were mirrored by the Treasurer, Wayne Swan, who said the new debt raising was a "positive" step.It was also further evidence that the Government's financial support for the market last October had been the right thing to do, he said.He would not be drawn on the need for further backing €“ which observers believe could now be scaled back to an extra $2 billion €“ but he was wary about ending the funding too soon."While this transaction is undoubtedly an encouraging sign for smaller lenders and for borrowers around the country, we must be careful not to get ahead of ourselves," Mr Swan said. "Global capital markets are still volatile and, while we are seeing tentative signs of stabilisation, we recognise that there is still some way to go."
© 2009 Sydney Morning Herald
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