The Australian mortgage market is on track to deliver a record year of RMBS issuance, but investors are keeping a close eye on how changes to mortgage broker remuneration could impact credit quality.
Speaking to Mortgage Business, Australian Securitisation Forum (ASF) chief executive Chris Dalton said that he is confident that, by the end of December, the market will have set a record year of issuance.
“It has been issuance right across the spectrum, from major banks like CBA, the regional banks, many of the mutuals and the non-banks,” Mr Dalton said.
“The trend that I would point to is that almost all of the deals that have been brought to market this year have been upsized,” the chief executive said. “You might have a bank with an ambition to raise $750 million, but they will be oversubscribed and upsize to $1 billion.”
Demand from domestic and international investors remains strong. However, Mr Dalton noted that bond buyers are keeping a close eye on economic fundamentals and underling credit quality. Given that mortgage brokers are the primary distribution channel for Australian mortgages, any changes to the third-party channel are also being considered.
“I think the angle [RMBS investors] would be looking at is, will it change the incentives and behaviours of mortgage brokers for the worse?
“Investors and lenders are concerned about the quality of underwriting and the controls to make sure unscrupulous individuals and practices don’t start creeping in once loans are closed.
“If it forces consolidation so there is better compliance and professionalism in the sector, that will l be a good thing.”
However, Mr Dalton said that what investors are really looking out for is whether the changes to broker remuneration will be positive, neutral or even lead to a deterioration in credit quality.
His comments come after Mortgage Ezy chief executive Peter James warned that any reduction in broker remuneration will have an impact on the quality of deals they submit. Mortgage Ezy, which relies on securitisation markets for funding, also relies almost exclusively on mortgage brokers as a distribution channel.
“As a mortgage provider,” Mr James said, “we expect an application to be delivered to us with a high quality and with the service provided to the customer. We feel that a broker is the best person to provide that.
“If you cut a broker’s payments, it will only result in a decline in the quality of loans delivered. That doesn’t serve any of us in the industry.”