In its Financial Stability Review, the RBA noted that while mortgage originations by the non-banks have a limited influence on competition in the mortgage market and the housing price cycle, recent regulatory controls imposed on banks could lead to a rise in investor lending from non-bank lenders.
“Australian financial regulators remain alert to the possibility that activity by non-bank issuers might pick up in response to the recent tightening in banks’ housing lending standards and higher pricing for banks’ investor housing loans,” the report said.
“The potential for this to occur will depend on market demand for additional mortgage originators’ RMBS, as well as mortgage originators’ access to the necessary warehouse funding from banks (the provision of which regulators are monitoring) along with their operational capability to process greater lending volumes,” it said.
The RBA report highlighted that non-bank securitisation activity is an area of shadow banking that warrants particular attention given the "heightened risk environment in the domestic mortgage market".
“Issuance of residential mortgage-backed securities (RMBS) has picked up since 2013, including for non-ADI mortgage originators that fall outside the prudential regulatory perimeter,” the report said.
“Mortgage originators tend to have riskier loan pools than banks: they are the only suppliers of non-conforming residential mortgages (which are those that do not meet the standard underwriting criteria of banks), and their RMBS have a higher average LVR and a larger share of low documentation loans and interest-only loans.”
Mortgage brokers have already started looking beyond the banks. Sydney-based broker and CEO of Multifocus Properties & Finance Philippe Brach told Mortgage Business that the group is shifting its strategies when setting up structures for its investor clients.
“We used to use the big four banks a lot as pricing and products were unbeatable,” Mr Brach said.
“Nowadays, we tend to shift some satellite loans to mortgage managers who are not taking deposits from the public and have access to funds from different sources at reasonable rates and at much better servicing levels."
Mr Brach provided one example of a client who is an experienced investor and wanted to finance his next property.
“He can borrow about $200,000 from the majors today, whereas using a mortgage manager who will take existing debt at actual repayments for servicing, he can borrow $800,000,” he said.