Mortgage-backed securities surge

THE value of Australian residential mortgage-backed securities issued last year hit its highest level since 2007 – before the global financial crisis – a senior Reserve Bank official says.

Assistant governor Christopher Kent, who oversees financial markets for the RBA, said in a speech yesterday the demand for the securities rose while supply also increased.

That was partly due to extra insurance by non-bank financial institutions, he said.

Mortgage-backed securities are a type of investment product secured by a mortgage or a collection of mortgages. They surged in popularity ahead of the financial crisis.

They were criticised following the crisis on the grounds home loans given to high-risk borrowers were often bundled up with better-quality loans, concealing the level of risk.

Non-bank financial institutions, which account for about 1 per cent of local mortgage lending, issued $16 billion in mortgage-backed securities last year.

It came as non-bank lenders increased their share of the mortgage market last year.

“That in turn reflected the decline in the growth of the major banks’ investor and interest-only loans as the banks responded to (regulatory measures) to tighten lending standards,” Mr Kent said.

Last year, the banking regulator – the Australian Prudential Regulation Authority – launched new rules requiring banks to limit the number of interest-only loans.