RBA to introduce new reporting requirements for residential mortgage-backed securities

The Reserve Bank plans to introduce new reporting requirements for lenders that issue residential mortgage-backed securities (RMBS) to investors as the Australian securitisation market show more positive signs of a gradual recovery.

In his address to Australian Securitisation Forum in Sydney yesterday RBA assistant governor Guy Debelle said RMBS issuance in the year to date had totalled $10 billion.

“By way of comparison, in the second quarter of 2007, at its peak, issuance amounted to $25 billion,” he said.

The RMBS market was heavily used by non-bank lenders and other smaller lenders before the GFC to access cheap mortgage funding, with tranches of mortgages securitised and sold to both local and offshore investors.

But the RMBS market froze following the GFC as offshore investors demanded higher returns to compensate for the perceived higher risk, spooked by sub-prime crisis in the US.

Since then the Australian market has been recovering gradually with the help of the Australian Office of Financial Management, which has acted as a cornerstone investor on many transactions to reassure investors.

The graph below, presented by Debelle, shows how the market slumped from annual RMBS issuance of around $40 billion in 2007 to just over $10 billion in 2008, but has risen since then.

Under the new draft quarterly reporting requirements, the RBA will require that “issuers provide the Reserve Bank and the broader public with more comprehensive and up-to-date information on the securities”.

The new information requirements cover both transaction-related data as well as information on the underlying assets, such as anonymised loan-level data.

Industry comment on the new requirements is been sought by the RBA until December 28, with a full breakdown of the draft proposal provided on the RBA website.

“When the templates are finalised, an implementation period will apply for RMBS to give issuers the time to develop the reporting systems necessary to comply with the new reporting requirements,” says the RBA.

Commenting on the initiative and the improvement in the market, Debelle said that in Australia, RMBS issuance in 2012 had recovered to the point “where new issues are replacing maturing issues so the stock outstanding is no longer declining”.

“This year we have seen positive signs in the Australian securitised market, particularly over the past several months," he added.

“First, despite the periodic bouts of turmoil in offshore markets, there has been a steady flow of new issues. Primary spreads have gradually tightened this year and a number of deals have been fully placed with external investors (that is, no tranche has been retained by the issuer), including junior tranches.

“More recently, several issues have been completed with little or no support from the AOFM due to strong private investor demand. And, of course, the collateral underlying Australian asset-backed securities (ABS) continues to be of high quality, with arrears rates on Australian mortgages remaining low,” he said.

Debelle said the new information requirements “should not only benefit the Reserve Bank in assessing the quality of the securities provided to it as collateral, but also be of benefit to the market as a whole”.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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