Reserve Bank assistant governor Guy Debelle opened yesterday’s Mortgage Innovation conference in Sydney by declaring that small lenders were coming back and the mortgage market was contestable, and was immediately challenged by a number of industry players.
At issue were different views about the cost of funds for small lenders and their ability to control their margins.
Debelle said the securitisation market had returned as a viable source of funding for lenders.
In the RBA’s view, with spreads for issues not supported by the Australian Office of Financial Management at around 130 to 135 basis points over the swap rate, the cost of issuance was “a little below break-even at 160 basis points”.
ING Direct chief financial officer Mark Mullington said RMBS issuance was still a costly exercise. He estimated that in addition to the 130 basis point spread on AAA tranches, issuers paid extra coupon on their subordinated tranches, 40 basis points of fees and servicing costs, 10 basis points for pool insurance and 30 basis points on the cash to bill spread.