Smaller home lenders take off

The move suggests there has been a further thawing in funding markets, particularly for issues of mortgage-backed securities, raising hopes that competition is returning slowly as the big banks tighten their grip on lending.

Liberty Financial, previously regarded as a specialist lender to borrowers that found it tougher to win bank finance.

Liberty has spent the past 18 months largely focusing on serving its existing customers, rather than bringing in new business.

But Liberty is believed to have tightened its credit criteria, focusing on so-called near-prime customers for home and car loans.

While Liberty has sold some bonds into the Federal Government’s securitisation funding programs, it is believed that the lender has also secured financing in private markets.

The issuance of residential mortgage-backed securities (RMBS) in Australia dried up in late 2007 as it did around the world, as demand fell away given the problems in the US housing market.

The securities are packages of home loans that are sold to investors, providing a crucial line of funding for mortgage providers.

Brokers say activity among non-banks started to revive late last year, spurred on by the Rudd Government’s decision to double a funding program for RMBS.

That move took total government funding to $16 billion.

At the same time, the widening of interest margins in home loans – particularly among major banks – is restoring lending profits. Last year, at the peak of their dominance, the big four lenders collectively wrote a record 93 per cent of new home loans.

SOURCE: Eric Johnston – The Age

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