Despite stark differences between the US and Australian capital markets, the ongoing liquidity squeeze is forcing sub-prime lenders to safeguard their core business by adapting to new market conditions.
Over the last month lenders in the sub-prime sector including Liberty Financial, Bluestone and Pepper have undergone some tough rationalisation in response to tighter conditions.
Commenting on the US sub-prime crisis, Liberty Financial general manager of mortgages James Boyle agreed that recent events had “had a significant impact” on the lending industry as a whole.
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“We’ve had to make some adjustments to reflect the current appetite for the non-conforming market,” Boyle told Mortgage Business.
“When all of this clears, lenders who have respect for the value of risk will still be here.”
Liberty Financial currently schedules settlements a month in advance, with priority given to users of LoanNet – the company’s loan application and approval system.
Liberty’s decision to revise its settlement schedule is in line with other moves in the non-conforming space in response to changing market conditions.
Bluestone Mortgages was the first non-conforming lender to announce rate adjustments, in August this year. The lender has since lowered its 95 per cent LVR to 90 per cent.
Bluestone Mortgages CEO Alistair Jeffery said flexibility and the ability to take both a proactive and reactive approach to lending was essential in the current funding climate.
“Commission structures and margins have to reflect true costs. Every day we receive new information that allows us to make the best decisions for the business’ future. A reactive approach to business is now normal,” said Jeffery.
The liquidity crisis has also impacted Pepper Homeloans, which shelved its Xpress and Mega Xpress products in October, releasing 19 BDMs and other staff in the process.
Pepper Homeloans CEO John Empey told Mortgage Business the company would focus on core non-conforming products with good margins until there was greater stability in capital markets.
The current environment has also been a double-edged sword for GE Money.
Though GE Money claims not to have been affected by liquidity issues the lender has still adjusted its rates in line with current market conditions.
“Everyone is watching what’s happening with a close eye,” said GE Money Third Party Solutions managing director, Mark Rice, adding that the next 12 months should present some good opportunities for GE Money to grow its market share.
But Rice remains concerned about ongoing negative media coverage of the industry, which may hinder its recovery.
“The perception created by the popular media isn’t doing anyone any favours,” he said.
