Alert

Who does this affect?

Mortgage lenders looking to issue AAA rated Australian RMBS

What do you need to do?

Consider the implications on your business of the Government's decision to invest in Australian RMBS and determine whether to enter into consultations with Treasury.

Ian Edmonds-Wilson
Partner
T +61 2 9296 2520

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Melbourne
Ian Paterson

Brisbane
Berkeley Cox

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Author
Ian Edmonds-Wilson

The Australian Government announced on 26 September 2008 that the Australian Office of Financial Management (AOFM) will purchase Australian RMBS in two initial tranches of $2 billion each.

According to the Government, the policy objectives of this action include:

• to reinvigorate, and promote the efficient operation of, the Australian RMBS market,

• to support competition in mortgage lending, and

• to put downward pressure on mortgage interest rates.

See the Government’s media release.

At this stage, the Government has provided only limited details as to how the proposal will work.

Questions to consider include:

• How will the $4 billion be allocated by AOFM? For example:

• Will any mortgage lenders be excluded from the proposal (for example, banks)?

• If the RMBS is AAA rated, why are lo-doc loans or non-mortgage insured loans excluded?

• Must it only be newly issued RMBS that can be subject to the proposal?

• If there is no market for the subordinated tranches, will the proposal actually help?

• Is there any intention to increase the initial commitment of $4 billion.

Mallesons is acutely aware of the liquidity challenges facing its clients in the non-bank mortgage lending sector.

Accordingly, although the policy details will be very important, the proposal does at least appear to offer a relatively simple funding tool to market participants. The proposal can be implemented in the short term and can supplement other liquidity measures taken by the Reserve Bank and APRA (and which are available to some market participants) in respect of repo criteria and “self securitisations” by ADI’s.

As the group of people who can best assist the Government to meet the stated policy objectives of this proposal, we are interested to know if our mortgage lending clients see any merit in liaising with the Government either individually or as a collective.

Please call a member of our team if you wish to discuss the implications for your business of this proposal.