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Pepper cracks non-conforming RMBS deadlock

by Staff Reporter12 minute read
The Adviser

Australian securitisation took a significant step forward this week with the news that Pepper Homeloans successfully priced a A$200 million non-conforming mortgage issue.

The Pepper Residential Securities Trust No.7 is the first non-conforming residential mortgage transaction in Australia since March 2007 and the first in either Australia or Europe since the August US sub-prime crisis.

“We are very pleased with the response of investors to this transaction,” said Patrick Tuttle, Pepper Australia chief financial officer.

“This transaction demonstrates that there is continuing demand from investors for Australian non-conforming RMBS from strong issuers. We expect this deal will encourage other non-conforming issuers to follow our lead and will provide further momentum to the Australian mortgage-backed securities market.”


Speaking on the deal, Sam Makhoul, Mortgage Settlements Australia chief executive officer, said the successful issuing shows that the recent wobbles experienced in the US should not have a lasting negative impact on the Australian market, adding that other securitisers will take comfort that the Pepper issue is the first sign of a return of investor confidence.

“We have to remember that while the US is going through a recession the Australian economy is still growing strong. The fact is that mortgage-backed securities are a solid investment and investors will eventually flock back to safe markets like Australia.”

According to Fariborz Moshirian, professor of finance at the University of New South Wales (UNSW),  investor confidence is not only returning in Australia, but globally as well – though he believes that international markets are certainly more cautious than they were before.

“Those issuing RMBS deals simply have to make sure that they offer the right incentives to investors to attract them back. Australia has a strong economy and a good history with handling debt, making us attractive to investors,” he said.

The good news, according to Makhoul, is that the latest Pepper issue should pave the way for non-bank lenders to re-emerge from the current lull and market themselves with confidence in 2008.

“With the election behind us there should be a surge in property sales – but not necessarily prices – especially in NSW where there is latent demand. This will translate into increased lending.

“It is now up to non-bank lenders to recapture some of that market share [from the banks] by convincing their consumers that pricing is steady and safe,” he said.

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