Latest NewsMortgage Market Gets $8 Billion BoostSaturday, 15 October 2016

AAP/Reuters

The federal government will invest a further $8 billion of taxpayers' money in new residential mortgage-backed securities (RMBS) to support the home lending market, Treasurer Wayne Swan says. The move is set to double its investment in mortgage-backed securities, and comes as an earlier investment of $8 billion announced a year ago nears completion.

The government first stepped in to support the RMBS market last year after it practically shut down due to the global credit crunch. "The government will direct the Australian Office of Financial Management to provide up to a further $8 billion of support to new issuances of high-quality RMBS, depending on market conditions," Mr Swan said in a statement on Sunday.

"This investment will provide a major boost to smaller lenders and promote competition in the mortgage market, helping to put downward pressure on borrowing rates over time."

Mr Swan said the additional investment wouldn't add to net debt "as the government will be investing in, and become the holder of, high quality AAA-rated assets".

The federal government invested an initial $4 billion to boost competition in the mortgage market in September 2008.

A further $4 billion was announced in October last year.

The initiative is aimed at smaller banks and non-bank lenders who have seen their share of the home lending market slump following the global financial crisis.

"Securitisation is an important source of funding for smaller mortgage lenders, and enables them to compete with larger lenders," Mr Swan said.

"The government's temporary extension of the program will help smaller lenders to continue to issue RMBS in the short-term as the securitisation market recovers from the impacts of the global financial crisis."

If the market improves "sufficiently" the government will assess whether the full $8 billion extension is required.

Part of the support could be delivered through a fee-based liquidity facility rather than direct investment by the Australian Office of Financial Management.

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