The government should guarantee the mortgage-backed securities (MBS) market to improve liquidity and curb home loan rate rises, the Australian Securitisation Forum (ASF) said yesterday.
According to ASF executive director and chief executive Greg Medcraft, the Australian government could learn from international markets where liquidity has remained much more fluid, such as the Canadian mortgage market.
“We believe Australia would benefit from enhancing its MBS model for prime residential mortgages by creating a new structure that would issue higher quality, government guaranteed mortgage-backed bonds,” he said.
The Canadian MBS model works by issuing Canadian Mortgage Bonds (CMB) that are secured against pools of eligible mortgages and supported by mortgage insurance.
The principal and interest payment of the CMBs are guaranteed by a government body, which means the securities have the characteristics of government bonds with a higher yield -- making them highly attractive to investors.
The ASF said it will meet with key industry members and the federal government to gather feedback and input on the proposed model for Australia.
It hopes to establish a taskforce in coming months to achieve consensus on and procedures for introducing the new model into the market.
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