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Govt to boost RMBS by $4bn
Topic Started: 14 Dec 2010, 05:16 PM (1,313 Views)
Frosty
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More fuel for the bubble..... :rant:

http://www.businessspectator.com.au/bs.nsf/Article/Govt-to-ban-mortgage-exit-fees-C2V8M?OpenDocument&src=hp7

Govt to boost RMBS by $4bn

Published 10:18 AM, 12 Dec 2010 Last update 3:53 PM, 12 Dec 2010

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By a staff reporter, with AAP/Reuters

The federal government will spend another $4 billion on residential mortgaged-back securities to help smaller lenders, taking to $20 billion its investment in non-bank players since the onset of the global financial crisis.

As part of a long-awaited package of banking reforms, the government also said credit unions and building societies will for the first time be allowed to issue covered bonds, in a bid to boost competition in the lending market.

At a press conference outlining the reforms, Treasurer Wayne Swan said the main objective was to ensure consumers were empowered to shop around for a better deal.

"At the moment the big banks rely on the fact they don't think their customers can walk down the road or want to walk down the road (to another bank)," Mr Swan said.

"Smaller lenders play a vital part in this objective," Mr Swan told reporters. "We need our smaller lenders to be able to compete vigorously with the big banks, forcing them to do better by customers."

Mr Swan said he wanted the mutuals sector to become a fifth pillar of Australia's banking sector, alongside the four major banks: the Commonwealth Bank of Australia Ltd, National Australia Bank Ltd, ANZ Banking Group Ltd and Westpac Banking Corp Ltd, which currently control around 87 per cent of Australia's $1.1 trillion home loan market.

Building societies and credit unions controlled 36 per cent of mortgages and 25 per cent of deposits in 1984 but over the years their market share has dwindled to four per cent of the two markets.

Under the reforms, the government's current guarantee on bank deposits of up to $1 million will be made permanent, and mutuals will be able to call themselves banks, if they wish, and given a 'Government Protected Deposits' symbol to help consumers identify that deposits invested with mutuals are protected in the same way as deposits with banks.

New investment options for super funds

In addition to allowing all financial institutions to issue covered bonds, the government has also promised to accelerate the development of a "bullet" residential mortgage-backed securities market for smaller lenders.

These products cannot be paid off early, so they can be sold as a long-term fixed-income investment as a way of giving smaller mortgage players a new income stream.

"The importance of covered bonds is it will secure investment from Australian superannuation funds directly in to our banking system in a way which has not really occurred before," Mr Swan said.

"It will enable us to enhance investment by Australian savers back into our country for the development of our nation."

Price signalling on watch

The government has confirmed it will allow the Australian Competition and Consumer Commission (ACCC) to prosecute anti-competitive price signalling.

"The ACCC has advised me that they do believe there has been instances in banking of price signalling," Mr Swan said.

He said given this advice the only responsible thing to do is give the consumer watchdog the powers it requires to act in response.

"We've worked with the ACCC on this methodically to avoid creating unintended consequences for other sectors of the economy," Mr Swan said.

Exit fees banned

Mortgage exit fees have been targeted by the reforms, with the fees to be banned outright on new home loans from 1 July next year.

"Some big banks have already abolished their exit fees in direct response to the reforms that we already have out there. We will legislate to ensure they aren't reintroduced," Mr Swan said.

"If the banks try to rebadge their mortgage exit fees as any other type of fee, ASIC will take them to court if these fees are unconscionable - that's the law."

Account portability on the table

In another development, former Reserve Bank governor Bernie Fraser will conduct a study into how technology can be harnessed to make it easier for consumers to move between deposit accounts and mortgages.

Mr Swan acknowledged the difficulty of allowing consumers to take their account numbers from one bank to another.

"It doesn't exist anywhere in the world at this point in time," Mr Swan said.

"It took 15 years to get mobile phone number portability in Australia in what was a new and young and dynamic market," he said.

"Trying to get deposit account portability in an older, established, more complex market where each of the major institutions has different technology is really hard but we think it's worth a go."

Fact sheets to help borrowers

The government will also introduce a mandatory key fact sheet giving new home borrowers information on monthly mortgage repayments and how they can shop around for a better loan.

"If you go and trawl through much of the material that is supplied to a borrower it's pretty incomprehensible," Mr Swan said. "What we want here is a uniform fact sheet so a borrower can put one financial institution up against another financial institution and clearly see what the difference between the two is."

Starting point

Consumer group Choice says the government's banking package is a starting point for serious reform.

Choice says it particularly welcomes several proposals aimed at putting power and money back in the hands of consumers, such as the ban on mortgage exit fees and transferability of lenders' mortgage insurance.

Choice says it also approves of the fast-tracked credit card reform legislation and a review of automatic teller machine (ATM) fees.

Choice's banking campaign director Richard Lloyd said the government had shown it had listened to consumers.

"This is a good way to level the playing field," Mr Lloyd told reporters.

"Done the right way these proposals could mark the start of a major shift in banking, placing more power in the hands of consumers."

Cautious response tipped

RBS bank analyst John Buonaccorsi said: "Most of what has been announced has been flagged or leaked. I don't think there is anything really new or earth-shattering here, so I don't see a huge reaction."

"But certainly over time, it will lead to slightly cheaper housing loans, because covered bonds are cheaper funding. But it is not going to cause a dramatic difference," he added.

Hockey gives reforms three out of 10

Shadow treasurer Joe Hockey has rated the government's banking package three out of 10.

Mr Hockey says the government has failed to deal with the "fundamental challenges of the banking system".

"This is about political relief for the government, not mortgage relief for bank customers," Mr Hockey told reporters.

Mr Hockey said two of the four major banks had already banned home loan exit fees.

"This will have an impact on smaller players," he said.

"Other fees will go up because the smaller players need that fee income to remain somewhat competitive with the larger players."

Mr Hockey said the government's banking reform package had nothing for those with a current loan or small businesses.

"If it was reform it would be considered, it would be detailed, it would be across the board. It's not reform."
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ThePauk
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I have been following this and it is interesting as to the difficulty the AOFM is having unloading the RBMS's

http://www.businessinsider.com.au/australia-is-selling-all-of-the-rmbs-it-bought-during-the-gfc-to-support-the-banks-2015-5
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Terry
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Looks like a desperate attempt to look like they're doing something to show that they don't necessarily buy into the idea of the cartel (which is bullshit of course)
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Loki
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Quote:
 
"Smaller lenders play a vital part in this objective," Mr Swan told reporters. "We need our smaller lenders to be able to compete vigorously with the big banks, forcing them to do better by customers."

How does everyone get this so backwards? The bank buys the mortgage from the mortgagor. The mortgagor is the issuer of the mortgage, the bank is the customer. Mortgage rates are bids, mortgages are offers.

Maybe it is in the banking world's interest for people to not understand this dynamic.


“Talk sense to a fool and he calls you foolish.” - Euripides
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The Whole Truth
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The smaller banks serve one purpose, to give the big 4 the cover needed to exploit the public and at the end of the day put their hands up and say "we were just being competative! Everyone was doing it" Every action of the Big banks, their puppet the rba, and government, has but a single purpose. To enrich themselves as millions of australians go into debt servitude. The same occured in the last cycle depression. The banks consolidated after stealing large volumes of deposits, and yet insisted all loans be repayed in full.
How does everyone miss this? Oh that's right, because it's different this time. They won't let it happen, this time.
"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." John Stuart Mill
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jrsnr
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ThePauk
24 Aug 2015, 07:55 PM
I have been following this and it is interesting as to the difficulty the AOFM is having unloading the RBMS's

http://www.businessinsider.com.au/australia-is-selling-all-of-the-rmbs-it-bought-during-the-gfc-to-support-the-banks-2015-5
If you are not aware of it you may like to check out the Australian Office of Financial Management website page on Residential Mortgage Backed Securities for further links to data/reports/notices on the program: http://aofm.gov.au/cash-management-and-investments/residential-mortgage-backed-securities/

Opening Comments for ASF forum Sydney 30 July (RMBS divestment)
Quote:
 
p2. Given the lack of trading data for the secondary RMBS market we fully expected that it would take some time for expectations to adjust, although we had probably underestimated the extent of the gap in expectations revealed so far.

But what remains clear is that these considerations push us towards the need, among other things, to carefully formulate an AOFM view on the value of the notes being offered and to carefully set reserve prices for each auction...

p3. Moving on to the things we do not take away from the Direction, the first is that it is clear that we are not to run some sort of ‘fire sale’...

Furthermore, I presume that if it takes us considerably longer than the next 12 months to fully divest the portfolio that this would be disappointing for the people in this room as it would imply that market conditions have not been terribly favourable for your issuance and/or investment activities over the year ahead.

Judging by the share price of some of the banks over the last little while and with the more recent changes to tier capital requirements, if the current market downturn continues looks like some of our banks may need to consider raising some more capital.

Based on the above it will be interesting to know what the expectations of the Federal Reserve in the USA are expecting with respect to divestment of their securities. As things stand simply advising the market that their quantitative easing program was stopping has coincided with a market downturn - obviously correlation is not causation - but how is the Federal Reserve to sell their securities into a market that can't handle not having a bond buying program let alone a market where they are threatening to raise interest rates. The only way forward that I see for the Federal Reserve is going to be QE4 and then QE-more, once they re-instigate QE at the level that they last left off at they will quickly realise that the market needs more - i.e. the growth paradigm - and then only way that the economy is going to recover is with progressively larger size QE programs.
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