Funding for self-employed opens up
Interesting article on The Adviser today which indicates to me that non-bank lenders are coming back into the market. Non-bank lenders made up a significant proportion of the volume of residential mortgage finance written before the GFC. Many of them specialised in low documentation (low-doc) lending as a point of differentiation from the major banks.
Low-doc lending was one of the first casualties of the GFC, as funders deemed the sector too risky and consequently paired back significantly on no-doc and low-doc loans. This was in part because international wholesale funding became very expensive as the price of risk soared.
Because non-bank lenders are unable to source money to lend from retail cash deposits (unlike the major banks) they are very reliant on the wholesale money markets to source money to lend for mortgages. Consequently they struggled to gain access to funding at competitive rates and were squeezed out of the mortgage market because unlike the banks.
Research by Genworth Financial revealed a dramatic decline in the number of low doc loans issued last year, from 24 per cent in August 2008 to 8 per cent in August 2009.
So if you agree that property price growth has some correlation to the amount of mortgage credit available in the market, then the health of the non-bank sector is something to keep an eye on.
In recent months though there has been significant signs of life returning to this sector.
In May, Resimac secured a $250 million residential mortgage-backed securities (RMBS) issue. This was an important development in the Australian securitisation market where there has not been a publicly offered deal with significant low doc loan concentration since the global financial crisis.
In the first week of July non-banks major lender, Bendigo and Adelaide Bank kicked off a $750 million RMBS issue, its third issue since November 2009.
Then in the second week of July, Macquarie Bank (who totally withdrew from the mortgage market at the onset of the GFC) re-entered the mortgage market unveiling a new range of home loan products aimed at investment borrowers. The bank is expected to fund up to $5 billion worth of mortgages over the next 12 months.
Now it seems the non-bank sector is starting to breathe some life into the low-doc finance space with self-employed mortgage products making a return. Non-bank lender Australian First Mortgage (AFM) has unveiled a new “lite doc” product. Its new self-employed lite doc loan has a maximum LVR of 80 per cent (LMI inclusive) and offers the refinancing of existing loans inclusive of cash out up to $10,000 to cover reasonable financing costs.
AFM’s national director of sales and marketing Iain Forbes said that despite the decision by banks to pair back on lending to self-employed borrowers, demand for low-doc products remains high. “There has always been a demand. While the banks continue to tighten their funding criteria, non-banks are stepping up to the plate in a bid to cater to this demand,” Mr Forbes said.
Note the re-positioning of this type of mortgage product as “lite doc” vs “low doc”…AFM’s marketing dept has obviously been hard at work!