Government injects $4 billion into mortgage market to ease funding pressure

The Federal Treasurer Wayne Swan has offered some relief to struggling non-bank mortgage lenders by announcing it will inject $4 billion into the mortgage market.

The Federal Treasurer Wayne Swan has offered some relief to struggling non-bank mortgage lenders by announcing it will inject $4 billion into the mortgage market.

The Government’s Australian Office of Financial Management will buy mortgage securities in two tranches worth $2 billion each.

The move will help non-bank lenders, who are finding it difficult to get funding as a result in the credit crunch.

“We need to have a competitive mortgage market so that people out there who are under financial pressure can get a fair go,” Swan said over the weekend.

“Boosting competition is something the Government has been emphatic about.”

Wizard boss Mark Bouris and Aussie Home Loans founder John Symond both praised the move. “This is very good, it’s very positive; hopefully it will improve competition,” Symond told The Age.

But not everyone is happy. The Australian Bankers’ Association has criticised the move, saying that “the Government should not attempt to ‘pick winners’ by funding individual businesses in preference to others”.

The Bankers’ Association has also warned the Government against supporting the supply of high risk loans. While Swan says the $4 billion will only be used to buy AAA rated mortgage securities, the ABA says even AAA rated securities can be derived from pools of housing loans that include high credit risk loans.

The Government’s move will put more pressure on all lenders to pass on future cuts in official interest rates, with the RBA widely expected to cut rates by 0.25% at its next board meeting on 7 October.

But some doubts still remain over whether lenders – particularly non-bank lenders – will be able to afford to cut. Inter-bank lending rates have sky-rocketed in recent weeks as a result of the turmoil on Wall Street and some economists believe lenders may only pass on part of any rate cut.

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