… and The Age does a feature on what it all means.
Other changes? Many non-bank mortgage lenders have all but closed for business. Wholesale funding is more expensive, and the mortgaged-backed securities market has collapsed. Last year, some $47 billion of Australian residential mortgage-backed securities were sold. In the past six months, this has shrunk to slightly less than $2 billion.
“It’s had quite a devastating effect on the mortgage industry,” says Joshua Gans, a professor at Melbourne Business School. “Now the big banks are the only ones who are able to loan in any significant volumes. We have lost competition.”
The most high-profile victim was RAMS Home Loans, whose profit downgrade contributed to the start of the August panic. It was struggling to refinance its debt just weeks after floating at $2.50 a share. Its founder, John Klinghorn, has pinpointed the moment things changed at August 9, 2007, when French bank BNP Paribas halted withdrawals from three of its funds, saying it could not “fairly” value subprime assets held in the funds.
“Up until Thursday (August 9, 2007), life was cool for us,” Klinghorn said in late August. “The market was clearly in turmoil in subprime. We are not in subprime. On Thursday, things changed. It was suddenly impacting everyone.”
Westpac “rescued” RAMS by buying the group’s brand name and franchise operations for $140 million.
Of course, many believe that this will just bounce back. There will be a simple test of that: when the RBA moves to reduce interest rates will bank mortgage rates follow? I guess we will see. I have a mortgage so I am hoping that they will.