Jun

17

Senate Committee on AussieMac

June 17, 2008 | 2 Comments | Joshua Gans

The Senate Select Committee on Housing Affordability has recommended that the Federal government further investigate an AussieMac style institution. The report is here and relevance bits are over the fold.

[Update: See the report on CNN Money]Mortgage corporation—’AussieMac’

9.38 The creation of ‘a public institution that can render liquidity’ to the market for  securitised mortgages was also proposed to the committee by Mr Joye.38 It is based on a similar institution in Canada, and bears some similarity to the longstanding ‘Freddie Mac’ and ‘Fannie Mae’ in the United States.39

9.39 The suggestion was endorsed by John Symond, who was concerned that a drying up of liquidity in the securitised mortgage market risked a return to the situation before the 1990s when a handful of banks were almost the only providers of mortgage finance and the margins charged home buyers and investors were consequently considerably higher.

9.40 He elaborated:
Christopher Joye’s suggestion to copy the Canadian mortgage backed security model has a lot of merit. I would probably tend to believe that we need a government supported liquidity initiative. The Canadian model would have been explained to you but they have not been impacted by the global credit crunch. Homeowners in Canada still have affordable interest rates. They are not out of money. We may find that, if funds start to get rationed in this country, it will be a serious problem for everybody not just homeowners… I am fully supportive of a government supported liquidity initiative and I do hope that the government has a hard look at that.40

9.41 The mortgage corporation was also supported by the Construction, Forestry, Mining and Energy Union, on the grounds that it would ‘preserve competition in the home mortgage market (a critical element in any affordability solution)’.41
9.42 A critical view was put by Professor Sorensen:

These are developments of Freddie Mac and Fannie Mae, which exist in the United States. They are mortgage providers. I actually think that the financial side of the housing system that we have is pretty well catered for in Australia. One of the events of the last five years and one which has actually propelled housing prices higher is the advent of a variety of secondary mortgage lenders, who did a very efficient job in forcing down interest rates for home borrowers but, in so doing, enabled them to pay
more for housing with the budgets that they had, and that underpinned at least part of the rise in house prices. I am not sure that we need similar agencies to those in the United States.42

Recommendation 9.2
9.43 The committee recommends that Treasury examine the international experience with a securitised mortgage scheme and its application to Australia with a view to determining whether an ‘Aussie Mac’ style product would be beneficial in the Australian market.


Comments

2 Responses to “Senate Committee on AussieMac”

  1. dyork on June 19th, 2008 5:38 pm

    “Aussie Mac” is a really bad idea. The bubble is bad enough without another low cost provider to push prices even higher.

    Suggest you read Mish on the subject too.
    http://globaleconomicanalysis.blogspot.com/2008/06/australia-loses-mind-by-proposing-its.html

  2. Club Troppo » Missing Link Daily on July 22nd, 2008 8:46 am

    [...] Clarke seems skeptical that governments have the foresight.Joshua Gans reports that a potential AussieMac institution is one step closer and been recommended by the Senate committee on housing [...]