SPOTLIGHT -- Fighting fit

While many lenders have struggled under the weight of recent volatile funding conditions, non-bank lender RESIMAC has defied the odds, continuing to lend when others could not.

The GFC had a significant impact on the Australian economy and its funding environment.

The volatility in the market forced some boutique lenders out of the market altogether, even the majors had significant challenges.

Challenger, for example, sold its mortgage management business to National Australia Bank in August 2009, which consequently acquired a significant stake in the third party distribution channel via Challenger's PLAN, Choice Aggregation Services and FAST businesses. The acquisition left but a small handful of true non-bank lenders in the market.

Among those was RESIMAC. While the non-bank lender faced its own set of challenges during the GFC, through engaging a number of key strategies it was able to not only remain in the game, it has entered the post-GFC world stronger.

WEATHERING THE STORM

RESIMAC's chief operating officer Allan Savins credits the company's long standing success to its strong financial management, and its ability to innovate new products, processes and technology.

Since opening its doors in 1985, RESIMAC has continued to provide lending alternatives to niche segments of the market, such as the self-employed and the credit impaired.

In addition, the non-bank lender has ensured continued strong support to its key distribution partners: mortgage managers and mortgage brokers.

RESIMAC has been a key driver of the third party distribution channel over the past two decades, offering access to funding to mortgage managers and originators.

Today, approximately 40 per cent of all home loans are originated by the third party channel - a sector that has had the ongoing support of RESIMAC. "I believe there are a limited number of lenders that can lay claim to continuously supporting the role of mortgage managers and mortgage brokers for such a long time," Mr Savins says.

But the company has seen a lot more than just the evolution of the broking channel during its 25 years in business.

SOLID BEGINNINGS

Born from tough times, FANMAC (as RESIMAC was originally known) was the genius creation of the NSW state government.

At the time of its inception, the 1980s global banking sector was characterised by very high inflation and high interest rates.

Liquidity constraints were taking their toll on the financial services sector. Lenders were being forced to ration their capital, which ultimately stopped low income earners from obtaining housing finance.

Determined to combat this problem, the NSW state government established FANMAC - First Australian National Mortgage Acceptance Corporation.

Based loosely on a similar American model, FANMAC imported securitisation technology into Australia, which enabled the NSW government to guarantee mortgages.

The securitisation structure was robust; however the fixed rate model was a concern for borrowers.

Ultimately, the NSW government was forced to pull the program and introduce a new and improved lending initiative through the FANMAC's subsidiary RESIMAC - Residential Mortgage Acceptance Corporation.

By 2001, the principal company FANMAC had rebranded itself as RESIMAC.

The use of securitisation as a funding tool meant mortgage borrowers no longer had to rely on the banks to fund their residential mortgage needs. The non-bank sector was born, which gave way to cheaper home loans and a greater selection of products.

Mortgage borrowers were given a wealth of choice after non-bank lenders such as Aussie and Wizard emerged in the early 90s and stole market share away from Australia's majors.

However, within two decades, non-bank lenders started to lose their position in the industry as the majors acquired them, or forced them out of the industry altogether.

RESIMAC was one of the few non-bank lenders to survive.

MOVING FORWARD

Today, Mr Savins says he is hopeful of seeing a strong resurgence in the non-bank sector.

"A strong non-bank sector is vital for there to be competition in the Australian lending landscape and for consumers to have choice when looking for a home loan," he says.

"The emergence of the non-bank sector in the early 90s correlated into a significant reduction in interest rates charged by the banks, coupled with innovative products on offer and underpinned by superior customer service."

While he expects non-banks to make a comeback over the next few years, Mr Savins admits the biggest challenge will be making consumers and the mortgage broking industry as a whole realise the benefits of non-bank lenders.

According to Mr Savins, when the banks started aggressively targeting the non-bank financial sector at the onset of the GFC, it created the perception that the banks were ‘safer' than their non-bank counterparts.

This perception was not helped by the fact that many non-bank lenders did not pass on the bulk of the RBA's 2009 interest rate reductions.

"However, the fact that RESIMAC never ceased new business lending throughout the GFC, and the longevity of our existence gives us the pedigree to take on this fight," he says.