Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Current HansardDownload Current Hansard    View Or Save XMLView/Save XML

Previous Fragment    Next Fragment
Monday, 16 November 2009
Page: 11866


Mr Morrison asked the Treasurer, in writing, on 15 September 2009:

In respect of the Australian Office of Financial Management’s purchase of Residential Mortgage-backed Securities (RMBS)—

(1)   Will he confirm the statement on the Australian Office of Financial Management (AOFM) website that $7.382 billion has been invested in RMBS; if not, why not.

(2)   As at 15 September 2009, what was the split of this investment between (a) authorised deposit-taking institutions, and (b) non-authorised deposit-taking institutions.

(3)   As at 15 September 2009, had all of the RMBS subject to investment by the AOFM met with the AAA credit rating requirement; if not, why not.

(4)   Have any loans subject to the securities in part (3) failed to comply with the AOFM minimum requirements, including the 95 per cent maximum loan to value ratio; if so, how many.

(5)   Have all securities subject to AOFM investment continued to conform to AOFM minimum requirements; if not, why not.

(6)   Does he expect any future need for the AOFM to invest in RMBS after the completion of the current AOFM Request for Proposals for investment in RMBS; if so, why; if not, why not.

(7)   What has been the impact of the Government’s investment of $8 billion in RMBS on competition in Australia’s mortgage markets.

(8)   Is there greater or less competition in the Australian mortgage market as a consequence of the Government’s investment in part (7).


Mr Swan (Treasurer) —The answer to the honourable member’s question is as follows:

(1)   Yes as at 15 September 2009 $7.382 billion had been invested in RMBS.

(2)   As at 15 September 2009, the amount invested in securities of issuers that are authorised deposit-taking institutions was $3.929 billion and the amount invested in securities of issuers that are non-authorised deposit-taking institutions was $3.453 billion.

(3)   Yes.

(4)   No, as far as the AOFM is aware all loans associated with its RMBS securities met the minimum requirements as at the time of issuance.

(5)   Yes, all RMBS invested in have met the minimum requirements that apply at the time that the RMBS are issued. Importantly, all AOFM RMBS investments remain rated AAA. While the majority of the securities are expected to continue to meet AOFM minimum eligibility criteria, certain minimum requirements applicable at the time of issue may not be maintained. The key example of this is the requirement at the time the security is issued that a payment on any loan subject to the security must not be more than 30 days in arrears. Whereas this requirement is imposed at the issue date, loans subject to the security may go into arrears for more than 30 days at any subsequent date. No. The minimum requirements apply at the time that the RMBS are issued, and while the majority of the securities are expected to continue to meet AOFM minimum eligibility criteria, certain minimum requirements applicable at the time of issue may not be maintained. The key example of this is the requirement at the time the security is issued that a payment on any loan subject to the security must not be more than 30 days in arrears. Whereas this requirement is imposed at the issue date, loans subject to the security may go into arrears for more than 30 days at any subsequent date.

(6)   On the 11 October 2009, I announced that an extension to the Government’s investment in Australian RMBS to further support competition in Australia’s mortgage market. The Government will direct the AOFM to provide up to a further $8 billion of support to new issuances of high-quality RMBS, depending on market conditions. This investment will provide a major boost to smaller lenders and promote competition in the mortgage market, helping to put downward pressure on borrowing rates over time. The RMBS market continues to be affected by the fallout from the global financial crisis so this temporary extension will help smaller lenders to continue to issue RMBS in the short term as the market recovers.

(7)   The initiative has enabled 13 smaller mortgage lenders to raise an average of around $838 million each to fund new mortgage loans. As at 29 October 2009, the private sector had purchased $3.4 billion of the AOFM sponsored deals, or about 31 per cent of the funds raised through the program. The private sector has predominantly bought short-term securities, but in some recent transactions have purchased long-term securities. The AOFM has purchased about $7.5 billion and is expected to deploy the remaining funds by the end of October or early November 2009. This funding has enabled these lenders to maintain competitive interest rates, higher lending volumes and higher market shares than would otherwise be the case, and may have prevented some smaller lenders from withdrawing from mortgage lending. The initiative has maintained the operational infrastructure of the RMBS market, which will help to facilitate a faster recovery once conditions in financial markets normalise.

(8)   There is more competition that would otherwise have been the case.