MFAA gutted as Swan chops support of mortgage-backed securities

The government is set to axe its support of mortgage-backed securities, much to the MFAA's disappointment



Treasurer Wayne Swan has announced that the government will terminate its support for the mortgage-backed securities market, a move which has the MFAA disappointed, if not surprised.

MFAA CEO Phil Naylor tells Australian Broker he wasn’t aware the announcement had been made, but says it was only a matter of time.

“To be fair, the government has always said its support of the mortgage-backed securities market was going to be temporary and that’s been the case. We’ve argued against that in the past, saying they should take a more long-term view like they do in Canada, but we’ve never been successful.”

Swan’s announcement is expected to made official later today in a speech defending the government's management of financial markets since the GFC, as well as arguing for the preservation of the ‘four pillars’ policy, under which mergers between the major banks are barred, according to News Ltd, who received an early draft of Swan’s speech.

The Australian Office of Financial Management (AOFM), which has invested a total of $15.5bn into the market (which is reportedly worth $45bn) since October, 2008, will hold on to its remaining stock for the immediate future but won’t be making any more purchases.

The government has done its part and is now ready to step away from the industry, says Swan’s speech, according to News Ltd.

"The four pillars policy has endured, in one form or another, through seven successive Treasurerships over more than two decades and has served Australia well in all that time…Not only is it hugely important for banking competition, but it wouldn't be prudent to have the soundness of our banking system resting on the strength and risk management skills of three banks rather than four."

That said, Naylor is concerned over the impact the decision could have on smaller lenders.

“We still think the issue of funding needs to be on the table… we think the issue of funding in the mortgage-backed securities sector is on-going.”

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