Canadian model 'a heck of a lot' better for small lenders

by Adam Smith19 Jun 2012

An industry leader has claimed adopting a Canadian securitisation model would provide a better go for small lenders, even if major banks benefit as well.

MFAA chief executive Phil Naylor has commented that the association is not looking to see the Canadian mortgage system adopted "holus-bolus" in Australia, but wants to see aspects of the system introduced to increase competition among lenders.

"The Canadian Mortgage and Housing Corporation has three roles: a mortgage insurer, a securitiser and the third being a general advice body. We weren't suggesting that it function as either the first or third, but we're suggesting our government take a look at what they do in the second part of their role," Naylor said.

Industry commentator Kym Dalton has argued that the adoption of the Canadian system could actually see major banks grab even more market share. With accesss to another, cheaper source of funding, Dalton said large lenders would gain a further advantage.

While Naylor conceded that major banks in Canada typically account for 80% of the funding through the country's securitisation model, he argued that the 20% of funding accessed by small lenders would still be a substantial improvement for Australia.

"That's a heck of a lot more than we've got in Australia," he said.

"At the moment, our securitised lenders in Australia have been reduced to 1-2% of the market, and anything is better than that," Naylor added.

Naylor said smaller lenders in Canada were happy with the proportion of funding available to them, because it provided enough access to funding to give them a competitive position in the marketplace. He argued that the MFAA would not advocate simply mirroring the Canadian system, but would like to see aspects of its securitisation model adopted.

Canadian Finance Minister Jim Flaherty recently suggested that the country may look to wind back some of its involvement in the mortgage sector, with a move to stop providing mortgage insurance. But Naylor said the Canadian securitisation model is still working, and that there are no plans to scrap this aspect of the system.

"According to my contact with our sister organisation in Canada, that has never been raised. It's the insurance part of the operations they're looking at," he said.

Related stories:

Canadians may scrap mortgage model

Devil in the details of Canadian model

MFAA blasts major bank dominance