“Invisible hand of APRA” trying to rein in non-banks: Firstmac

The Australian Prudential Regulation Authority is trying to curb non-bank lending to investors as part of its latest moves to cool down the hot property market, says the country's biggest non-bank lender, Firstmac.

The "invisible hand of APRA" is trying to rein in non-banks to property investors, according to Firstmac CEO Kim Cannon and CFO James Austin, during an interview with The Australian Financial Review. The Firstmac executives were referring to APRA's comments on "warehouse facilities" provided by banks to other lenders.

APRA said last week it had advised authorised deposit-taking institutions (ADIs) that it was “monitoring the growth in warehouse facilities provided by ADIs to other lenders”. 

These facilities allow lenders to build a portfolio of loans that would eventually be securitised. Non-banks such as Firstmac, Liberty Financial, Pepper and some of the smaller use this window to write home loans, which they then securitise and sell to overseas investors.

“APRA would be concerned if these warehouse facilities were growing at a materially faster rate than an ADI’s own housing loan portfolio, or if lending standards for loans held within warehouses are of a materially lower quality than would be consistent with industry-wide sound practices,” APRA Chairman Wayne Byres had said.

The prudential regulator had announced new bank lending limits on interest-only loans last week. The regulator said interest-only loans must be restricted to 30 per cent of new residential mortgage loans.

Cannon and Austin said these remarks were APRA's attempt to cool down parts of the lending market it does not regulate, Fairfax Media reported.

But Cannon, a 35-year non-bank lending veteran, said Firstmac was more conservative in its lending than the major banks. 

"We have to be. Every dollar we lose comes out of my back pocket," he said.

Firstmac, which is reportedly seeking a banking licence, does not lend above loan-to-value ratios of 80 percent and quit lending to high-rise apartment investors two years before the major banks pulled back.

It writes a similar proportion of interest-only loans as the major banks – about 40 percent, according to APRA.

"It's crazy times, but we're not doing five or 10 percent deposits," said Cannon.

Firstmac has restricted its lending, especially in Sydney and Melbourne, which Cannon called as “extended” housing market. 

He played down concerns about a housing crash.

"There's very little speculation in the Australian housing market. People buy property here for their kids or as [long-term] investments. Also, Australians are among the highest quality borrowers in the world," he said.

Last year, Australian lenders issued about $18 billion of residential mortgage-backed securities (RMBS), compared with over $30 billion prior to the global financial crisis.

Firstmac manages an $8 billion home loan portfolio and has issued more than $16 billion in RMBS bonds since 2003.