Securitisation Market in Australia
Australia continues to have an active and developed securitisation market, which has grown five fold over the last five years. The securitisation market developed rapidly in the mid-1990s as new entrants to the residential mortgage market began to capture market share from the banks through home loans largely funded by the issuance of RMBS.
The low level of wholesale market interest relative to bank lending rates created an opportunity for new originators. The major banks followed suit, using securitisation as an alternative source of funding basic home loans and as a capital management tool. Now, many major Australian banks have securitised part of their residential loan books.
Since the mid-1990s, approximately $200 billion of assets have been securitised. In more recent years, many new asset classes have been securitised, and the degree of innovation in the market is high. Non-conforming retail mortgage loans, commercial mortgage loans, auto and equipment loans, financing of residential development projects through pre-sales contracts and lease payments from privatised government projects have all helped to expand the asset classes securitised.
RMBS, however, continues to be the primary asset class, which accounted for 93% of new issues in 2004. The growth was fuelled by the ongoing strength of the residential property market and a healthy economy. The Australian economic environment has been extremely favorable causing delinquencies and losses to drop to low levels throughout 2004. RMBS’ dominance in the market also reflects the increase in non-conforming and low-documentation loans, which are more readily available through mortgage originators that rely on securitisation for funding.