Australian RMBS may have lost their shine with investors but the fundamentals of the domestic market are still sound, says MGIC’s Patrick Chipman.
Capital markets have yielded little more than a trickle of funds to Australia’s securitisers in recent months.
As the rhetoric on the impact of the downturn subsides it is now clear that few lenders – large or small – are unscathed.
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But there is hope for a recovery. According to MGIC CEO Patrick Chipman, while there’s no short-term fix in sight, investors will return to the RMBS market.
“Most traditional RMBS buyers are sitting on their hands at the moment because they don’t know what to expect from pricing,” Chipman says.
“We probably won’t see much movement before the end of the year because people will want clean-looking summaries of how the year ended. There is also the risk of spreads increasing from week to week and no-one wants to have to wear higher costs than they have to.”
Conditions may be tight, but Chipman points out that the fundamentals of the Australian market remain sound. While a full market recovery may still be some way off, he believes the future for Australian securitisation still looks healthy.
“Lenders operate responsibly in this market and are very transparent using clean efficient systems creating markets with scale and complexity and this ultimately makes the Australian market attractive to investors,” he says.
Chipman says that in the current tight market, liquidity at a cost is preferable to capital running dry.
Chipman also believes the lenders with “dry powder” will be best placed to take advantage of the market when it’s on the brink of recovery.
“You don’t have to achieve a great yield at the moment,” says Chipman. “If you’ve got liquidity right now you’re instantly ahead of the pack.”
