Govt buys mortgage-backed securities

The federal government has bought its first tranche of troubled residential mortgage-backed securities (RMBS), in a bid to boost competition in the non-bank home lending market.

The Australian Office of Financial Management (AOFM) bought $500 million of RMBS from privately owned mortgage lender FirstMac. The remaining $100 million of the $600 million bond offer was taken up by private investors.

In September, Treasurer Wayne Swan gave the AOFM the authority to buy $8 billion in RMBS to ease credit shortages in the non-banking credit market.

FirstMac chief financial officer James Austin said the federal government purchase of the mortgage securities would help boost competition in the non-banking sector. "The main benefit will be that it will allow more funding to be provided for mortgages," he said.
"FirstMac relies 100 per cent on the securities market.

"Over the past 12 months these markets have been closed."
In the wake of the credit crisis, the banks have consolidated their hold on
Australia's home lending market as higher funding costs pushed non-bank lenders out
of the market.