'Never ever go there': Government-backed market

by Calida Smylie11 Mar 2014
The head of the Finance Brokers Association of Australia strongly disagrees with statements made by Mortgage and Finance Association of Australia head Phil Naylor about remodelling the country’s mortgage market on Canada’s.

There is a strong securitisation market and strong non-bank lender market in Canada, and consumers are befitting from the better competition, Naylor told Australian Broker on Friday.

Canada has 28.3% of its funding profile in securitisation, while Australia has 5%.

“It’s been demonstrated in the past – pre-GFC – that when Australia had a strong securitisation market we also had strong competition in the lending markets, and the non-bank lenders were very strong,” Naylor said.

He suggested the government guarantee the market, like in Canada.

But FBAA chief executive Peter White said a move to government-backed securitisation is “somewhere we should never ever go”.

“I have been a very outspoken opponent to this model for years as it simply doesn't work and hasn't anywhere in the world where governments get involved in mortgage lending – see USA Fannie Mae and Fannie Mac for example.

“Even the government formally reviewed this extensively and agreed with me and kicked it out as an option.”

White disagrees that there is not enough competition in Australia, saying there is no lack of funds for mortgage loans. 
 
“What people mean by ‘more competition’ is ‘cheaper’ and a return to the good old days of the mid ‘90’s when mortgage managers were kings.
 
“Back in the good old days banks and other deposit taking institutions had cost-to-income ratios of that in the 70’s and ‘80’s. Now they’re all sub 50% and many way lower.
 
“So it’s not about competition and cheap government backed money – it’s about efficiencies in production and distribution.”

Naylor said to improve the current mortgage market conditions and entice more first home buyers there needs to be more innovation within the LMI sphere.

But White disagrees more innovation is needed. Instead, he says APRA regulations are having an impact by prohibiting new entrants who could stimulate market competition.

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