ID :
21580
Sat, 09/27/2008 - 17:58
Auther :
Shortlink :
https://oananews.org//node/21580
The shortlink copeid
Govt invests $4b into mortgage market
AAP - The federal government will invest an initial $4 billion to boost competition in the mortgage market, which has been stifled by the global credit crunch.
Through the government's asset manager - the Australian Office of Financial
Management (AOFM) - banks and non-bank lenders will be able to tender their
mortgage-backed securities, rather than waiting for financial markets return to
normal.
"We need to have a competitive mortgage market so that people out there who are
under financial pressure can get a fair go," Treasurer Wayne Swan said in announcing
the move.
"This is an important measure to introduce competition into the mortgage market over
time.
"Boosting competition is something the government has been emphatic about."
The so-called Australian residential mortgage-backed securities (RMBS) market -
where banks can repackage existing mortgages in return for new funding - has
practically dried up because of the extraordinary developments in financial markets
in the past year, caused by the collapse of the US subprime market.
Retail banks now account for 90 per cent of all home loans, as non-bank lenders have
had difficulties obtaining funding in global markets to provide mortgages due to the
credit crunch.
Mr Swan said quarterly RMBS issuance has fallen to around just $2.5 billion since
mid-2007, compared with $18 billion in the previous year.
"To reinvigorate the Australian RMBS market and support competition in mortgage
lending, I will direct the AOFM to invest AAA-rated RMBS in two initial tranches of
$2 billion each," he said.
Mr Swan said the government's move was very different to what the US government was
trying to do with its $US700 billion ($A839.5 billion) bailout plan for the US
banking system, which is proposing to buy up existing bad debts and lesser quality
mortgage bonds.
TD Securities senior strategist Joshua Williamson doubted the government would be
willing to put taxpayers' funds at risk if the Australian banking system was in as
much risk as the US system.
"It is not surprising that this initiative has come about after the RBA's positive
Financial Stability Review," he said.
"The initiative appears designed to shore up mid-tier banks and non-bank lenders,
and politically at least shore up the government against criticism that competition
in the mortgage sector is diminishing as non-bank lenders find it harder to obtain
funds in wholesale markets."
The Reserve Bank of Australia gave the Australian banking system a clean bill of
health in Thursday's review, saying banks are profitable and well capitalised
despite the ongoing global financial market meltdown.
Mr Swan said the RMBS move was a temporary initiative that responded to highly
unusual conditions in international capital markets and their impact on Australia's
mortgage lending market.
"I expect that the RMBS purchased by the AOFM will be held until redeemed or sold
into the secondary markets as and when market conditions normalise," Mr Swan said.
He said the action followed legislation passed by the government in June which
expanded the range of high-quality assets in which the AOFM can invest.
The money for the AOFM to invest in mortgage securities will partly come from a
larger than expected budget surplus for 2007-08.
Mr Swan announced the final budget outcome for 2007-08 was $19.7 billion, $2.9
billion larger than forecast in the May budget.
He said this was the result of lower than anticipated government spending rather
than higher tax revenue.
Deputy Opposition Leader Julie Bishop accused Mr Swan of a policy backflip, saying
he had criticised Liberal leader Malcolm Turnbull for making the same suggestion
only five days ago.
Ms Bishop said the treasurer had revealed his complete lack of understanding about
the RMBS market last Sunday when he described Mr Turnbull's suggestion that the AOFM
invest in RMBS as "either a monumental gaffe or intentionally irresponsible".
"The treasurer must explain why he said this suggestion was either a monumental
gaffe or intentionally irresponsible only five days ago, but it has now become
responsible government policy," Ms Bishop said.
Mr Swan had first acknowledged problems in the RMBS market early this year, but had
only taken action after being pressured by the opposition, Ms Bishop said.
Through the government's asset manager - the Australian Office of Financial
Management (AOFM) - banks and non-bank lenders will be able to tender their
mortgage-backed securities, rather than waiting for financial markets return to
normal.
"We need to have a competitive mortgage market so that people out there who are
under financial pressure can get a fair go," Treasurer Wayne Swan said in announcing
the move.
"This is an important measure to introduce competition into the mortgage market over
time.
"Boosting competition is something the government has been emphatic about."
The so-called Australian residential mortgage-backed securities (RMBS) market -
where banks can repackage existing mortgages in return for new funding - has
practically dried up because of the extraordinary developments in financial markets
in the past year, caused by the collapse of the US subprime market.
Retail banks now account for 90 per cent of all home loans, as non-bank lenders have
had difficulties obtaining funding in global markets to provide mortgages due to the
credit crunch.
Mr Swan said quarterly RMBS issuance has fallen to around just $2.5 billion since
mid-2007, compared with $18 billion in the previous year.
"To reinvigorate the Australian RMBS market and support competition in mortgage
lending, I will direct the AOFM to invest AAA-rated RMBS in two initial tranches of
$2 billion each," he said.
Mr Swan said the government's move was very different to what the US government was
trying to do with its $US700 billion ($A839.5 billion) bailout plan for the US
banking system, which is proposing to buy up existing bad debts and lesser quality
mortgage bonds.
TD Securities senior strategist Joshua Williamson doubted the government would be
willing to put taxpayers' funds at risk if the Australian banking system was in as
much risk as the US system.
"It is not surprising that this initiative has come about after the RBA's positive
Financial Stability Review," he said.
"The initiative appears designed to shore up mid-tier banks and non-bank lenders,
and politically at least shore up the government against criticism that competition
in the mortgage sector is diminishing as non-bank lenders find it harder to obtain
funds in wholesale markets."
The Reserve Bank of Australia gave the Australian banking system a clean bill of
health in Thursday's review, saying banks are profitable and well capitalised
despite the ongoing global financial market meltdown.
Mr Swan said the RMBS move was a temporary initiative that responded to highly
unusual conditions in international capital markets and their impact on Australia's
mortgage lending market.
"I expect that the RMBS purchased by the AOFM will be held until redeemed or sold
into the secondary markets as and when market conditions normalise," Mr Swan said.
He said the action followed legislation passed by the government in June which
expanded the range of high-quality assets in which the AOFM can invest.
The money for the AOFM to invest in mortgage securities will partly come from a
larger than expected budget surplus for 2007-08.
Mr Swan announced the final budget outcome for 2007-08 was $19.7 billion, $2.9
billion larger than forecast in the May budget.
He said this was the result of lower than anticipated government spending rather
than higher tax revenue.
Deputy Opposition Leader Julie Bishop accused Mr Swan of a policy backflip, saying
he had criticised Liberal leader Malcolm Turnbull for making the same suggestion
only five days ago.
Ms Bishop said the treasurer had revealed his complete lack of understanding about
the RMBS market last Sunday when he described Mr Turnbull's suggestion that the AOFM
invest in RMBS as "either a monumental gaffe or intentionally irresponsible".
"The treasurer must explain why he said this suggestion was either a monumental
gaffe or intentionally irresponsible only five days ago, but it has now become
responsible government policy," Ms Bishop said.
Mr Swan had first acknowledged problems in the RMBS market early this year, but had
only taken action after being pressured by the opposition, Ms Bishop said.
