Australian lenders not afraid of subprime mortgages

by Julia Corderoy28 Aug 2014
While the issuance of subprime mortgages wreaked havoc on the US economy and contributed to the global financial crisis, the subprime mortgage market in Australia is gaining traction.

Rating’s agency Moody’s says Australian lenders have issued $3 billion worth of non-conforming home loans over the last 18 months, the ABC reported.

It is becoming increasingly more popular among Australian lenders to fund subprime mortgages through selling residential mortgage backed securities (RMBS). 

Moody's analyst Robert Baldi said that Australia is leading the subprime mortgage market.

"Since the beginning of 2013, we've seen 10 new transactions in the RMBS market from non-conforming issuers and that's totalled about $3 billion, so that's quite a pick-up in volume considering the market did shut down post the crisis in 2008," the ABC quoted Baldi.

Baldi added that non-conforming loans made up about 7% of RMBS transactions in the year to date and that most non-conforming loans are being written by non-bank lenders. He is confident, however, that Australia has enough regulation in the NCCP to avoid any subprime-afflicted crisis.

"Essentially this gets around the fact that in the US you saw those loans being written to borrowers pre-2008 with little to no income verification. In Australia that just can't happen."

Last week, non-bank lender Pepper, announced a new home loan range aimed at borrowers who require a more flexible assessment than that offered by traditional prime lenders.