Pepper Group Limited revealed this week that it had sold a $200 million portfolio of residential mortgage loans in its third and final domestic whole loan sale for 2016. In August, it agreed contractual terms on a whole loan sale transaction comprising a $400 million portfolio of residential mortgage loan, following on from a whole loan sale of the same amount earlier in the year.
Commenting on the most recent sale, Pepper’s co-group CEO, Patrick Tuttle, said, “Whole loan sales remain a vital component of our annual funding strategy, in addition to securitisation and wholesale bank warehouse funding.
“This transaction completes our 2016 funding program, in a year in which we have delivered record loan origination volumes.”
As well as whole loan sales, the group has also recently priced an $800 million non-conforming residential mortgage-backed securities deal, the largest deal in Pepper’s history and thought to be the “largest non-conforming mortgage securitisation in the Australian market since 2006”.
Despite the stock of marketed securitisations dropping from a peak of around $250 billion in 2007 to $100 billion now, non-conforming RMBS deals have played a greater role in the Australian securitisation market over the past year, with Pepper’s $800 million issue being larger than any non-conforming deal since 2007.
Speaking earlier this week, the Reserve Bank’s head of domestic markets department, Chris Aylmer, noted significant changes in the domestic securitisation market, with more involvement from non-major lenders and an increased share of non-conforming mortgages.
Mr Alymer said, “The decline in RMBS issuance this year has been driven by a significant reduction in issuance by banks.
“This reflects, among other things, less favourable conditions than in the senior unsecured wholesale debt market where banks have been able to issue in size and for longer maturities. The treatment of encumbered assets in the net-stable funding ratio also favours the issuance of senior unsecured debt over RMBS.”
Mr Aylmer highlighted that over the past year, non-conforming RMBS - which are mainly issued by non-bank mortgage originators - have accounted for about a quarter of total RMBS issuance, compared to a post-crisis average of around 5 per cent.
“Non-conforming RMBS have also become larger, with some recent issues being between $700 and $800 million – larger than any other non-conforming deal since 2007,” Mr Alymer said.
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.