Update on the Aussie Securitization Market

Abstract

Securitization has been recognized as an important form of funding for the Australian financial system. Reflecting recovery from the financial crisis, the Australian securitization market had an active year in terms of new issuance in 2014. The large majority of transactions were in Australian dollars, reflecting good domestic demand and a preparedness by some international investors to invest in AUD. The Aussie residential mortgage-backed securities (RMBS) market has been performing well, reflecting a strong credit culture in Australia, regulatory underpinning of underwriting standards, and the full-recourse nature of Australian mortgages. Sponsors of RMBS in Australia are typically the ongoing servicers of the mortgage assets, which provides implicit “skin in the game” where the lender/servicer has a direct economic interest in the performance of the securitized mortgages. The securitization industry is hoping that the banking regulator, the Australian Prudential Regulatory Authority (ARPA), will allow banks to use master trust structures and also to use date-based calls to issue bullet and scheduled amortization notes to international investors in non-AUD denominations with the objective of expanding the investor base and bringing global investors back to the Australian securitization market. The regulator is also looking to simplify securitization. The direction is for structures primarily to have just two credit tranches and to avoid resecuritizations and synthetic securitizations.