Largest non-bank RMBS issue completes: $1.76bn

It’s an achievement the Brisbane-based and independently owned Australian financial services provider said “… dispelled fears about weakness in the RMBS market,” and cited the “… exceptional quality of its prime loan book and demonstrated historical performance” as key to the landmark issue’s realisation.

Chief financial officer James Austin said the success of the issue proved that the British pension funds’ widely reported sell-off of Australian RMBS was due to the strength of our market. 

“The market is certainly volatile due to the RBA increasing interest rates, but our transaction demonstrates that it is still operating,” Mr Austin said. 

“It shows that UK pension funds are selling here because our market is one of the most liquid markets in the world, so they were able to raise cash here more easily than in most other countries.” 

Firstmac is a privately owned company that has been in business for more than 40 years and was highest among non-banks with an overall rating of 78 per cent in Momentum Intelligence’s 2022 Third-Party Lending survey of residential mortgage brokers.

Firstmac lending gets strong endorsement

The $1.76 billion issue brings the total amount of RMBS issued by Firstmac since 2003, to almost $42 billion. 

Notably, Firstmac has written in excess of 130,000 home loans, has $16 billion in loans under management and also has a growing auto-finance business with a current portfolio of $600 million, it confirmed.

“We continue to be well supported in the market, in part because our rate of mortgage arrears and defaults is among the lowest in the country, and well below those of the major banks,” Mr Austin explained. 

“This is a strong endorsement of our non-bank lending model and our conservative credit policies.” 

Mr Austin said the company was so confident in the quality of its loan book that it had launched a new initiative to provide monthly data on it to investors, making it the most transparent lender in Australia. 

The issue price of 1.53 per cent over the Bank Bill Swap Rate was higher than earlier RMBS issues, but still competitive, Mr Austin explained. 

“Firstmac has now funded $5 billion in 2022, so we’re very well placed for the year ahead,” he stated. 

“This means we’ll continue to have a forceful presence in the lending market, offering a real alternative to the big banks.” 

What is RMBS and its role in future lending?

In a recent In Focus podcast with The Adviser, Mr Austin explained the theory behind RMBS and how they worked in practice.

“This is the typical model of a non-bank lender; We will originate loans into a short-term facility, which is typically a warehouse facility funded by major banks,” he said.

“Once we’ve built up a pool of loans, such as, say, $500 million worth of residential mortgages, then we will take that to the wholesale markets and we issue that in the form of a residential mortgage-backed security.

“That is basically pooling those loans into a trust. It’s an SPV trust.

“We tranche that so there’s different levels of risk and appetite, and therefore margins that go with that at the same time.

“When we issue that in the market… say, a $500 million transaction, there’s obviously a lot of money. However, it’s generally only 15–20 investors who take that up and they have different appetites, different risk levels — whether it’s triple A or whether it’s a triple B.

“That’s how that market works.

“It’s [an] interesting point around RMBS is that it funds roughly 10 per cent of all mortgages in Australia.

“All lenders in Australia all have RMBS programmes.”

[Related: In Focus: How the RMBS market works]