Australian Banks Gobble Mortgage Loans Pie

Australian Banks Gooble Mortgage Loans Pie
By Alex Tilbury August 04, 2008 08:39am
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Australian Mortgage Customers be left at the mercy of the big banks as the only remaining mortgage lenders because the residential mortgage-backed security market is in danger of collapsing.

Securitisation has helped deliver cheaper home loans and a wider choice of mortgage products over the last two decades. But as non-bank lenders leave the market, the competitive pressures that have kept mortgage rates low may also disappear.

"The RMBS market is dying on the vine,'' says Greg Medcraft, chief executive of the Australian Securitisation Forum.

"The RMBS market has been an important driver of competition and innovation in the mortgage market.'' Confidence among institutional lenders, who buy the RMBS bonds that fund the mortgages that hundreds of thousands of Australians use to buy their homes, is so low that only $1.9 billion in RMBS bonds were bought in the first six months of this year compared with $47 billion during the same period last year.

This low volume of housing bonds issuance is transforming the mortgage market as non-bank lenders get crowded out by the big banks and evaporating competition.

Mr Medcraft says the five largest banks have increased their home mortgage market share dramatically in recent months.

After steadily falling from 65 to 58 per cent between 2004 and 2007, the RMBS drought has seen banks reclaim 10 per cent of the market, returning them to the glory days when they dominated it. Non-bank lenders entering the home mortgages market saw spreads, the gap between actual mortgage rates and the official Reserve Bank rate, drop two-thirds from nearly 5 per cent to now less than 2 per cent.

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