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Non-bank mortgage originators now turnover around 20 percent of Australia's annual $55
billion owner-occupied mortgage market, up from less than five percent at the start of the
decade. This growth in market share has been fuelled by a process known as securitisation,
a process which enables groups of mortgages to be pooled and shares in that pool sold to
investors. Aggressive marketing and a slow-to-react bank sector added extra push. Originators
fall into two main groups:
- mortgage brokers
- non-bank lenders
A mortgage broker offers mortgages from a variety of lenders. Apart from the big four banks,
there are a further 51 licensed banks in Australia and many of these lesser-known banks are active
in this market as are specialised securitisation companies. A broker may be able to call on 15 or
so lending sources, each offering a range of products and price structures. From this range, a
broker will select the most suitable for a particular client's requirements. Brokers generally
take their fee from the lender rather than the borrower, so there are varying degrees of
closeness between brokers and their lenders.
A non-bank lender takes a different tack. Lenders draw funds from their wholesale funds
provider, which may be a bank or securitiser, then on-lend these funds through mortgages.
Pools of these mortgages e then returned to the wholesale funds provider for subsequent
securitisation.
Clearly, volume is important in this business, so successful lenders either have a very high
market profile or they provide mortgages to a group of high-volume mortgage brokers.
Rates and charges are a moveable feast, but are generally very competitive against the
mainstream bank offerings. There are well over 200 non-bank mortgage originators active across
Australia and most are extremely price sensitive.
With a couple of exceptions, credit risk is assessed much the same as it is in banks, and
borrowers need to provide the same information including proof of income, asset and liability
statements and evidence of saving. There are some originators which specialise in 'higher-risk
credits' and will arrange funds for those with a poor credit history including former bankrupts.
Interest charged is generally two to three percent over the going rate and excellent explanations
for all past problems are required.
Securitised mortgages are held in trust by one of the major trustees, usually Permanent or
Perpetual, so if your originator stops trading or for any reason ceases to exist, you simply
continue to make mortgage payments to the trustee as usual. As with banks, unless you default
only you can terminate your mortgage.
The main drawback to dealing with an originator rather than a bank is the lack of a banking
relationship. An originator will not be able to treat your mortgage as part of a larger
"relationship" package which may include other loans, account facilities or provision
of other financial products. This lack of a relationship can be particularly important if the
borrower has or had other mortgage loans with that bank. Originators have forced the pace of
both interest rate competition and service levels in the Australian mortgage industry.
Interest rate margins have fallen from the three and four percent margins the banks enjoyed
in the ?s" to the roughly one percent margins now common, resulting in massive savings to
borrowers and underpinning a long-term positive trend in home affordability indexes. Levels
of service too have improved dramatically, with extended trading hours, home and office visits
and quick turnaround times now offered by many originators.
Most originators are members of The Mortgage Industry Association of Australia.
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