Non-banks “getting slaughtered”

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    Non-bank lenders are pushing the Treasury to get more access to cheaper funding in order to better compete against major banks on mortgage pricing.

    During the COVID-19 pandemic and its associated economic turmoil, banks have had access to the Reserve Bank’s $200 billion term funding facility, which smaller lenders say is giving the big players an unfair advantage, according to a report by The Australian.

    When the RBA slashed the cash rate to a record low of 0.1% earlier this month, it also said the rate on drawings under the term funding facility would fall to 10 basis points. Smaller lenders say that exposes a wide gulf in key parts of mortgage funding costs, which sits at about 130 basis points for non-banks in securitisation markets for prime loans, The Australian reported.

    That differential has led to a push to reconsider the measures. Stakeholders are meeting with the Treasury in coming days to state their case. They intend to discuss several alternative options for non-banks, including the Australian Office of Financial Management providing warehouse loan funding at the same rate the banks are getting, The Australian reported.

    An executive at a non-bank lender told the publication that parts of the industry were “getting slaughtered,” since they were unable to compete on mortgage pricing and cash-back offers as banks could draw on cheap RBA funding and a wave of deposits. Growth is down for some non-bank lenders, while the proportion of mortgages being refinanced away from them to big banks is on the rise, The Australian reported.

    Among the non-bank lender pushing the Treasury are Mortgage House, Resimac, Firstmac, Columbus Capital and mortgage broker AFG. The Australian Securitisation Forum and FinTech Australia are also involved in the push, according to The Australian.

    As part of its COVID-19 support measures, the federal government st up the $15 billion Structured Finance Support fund to assist non-banks. The fund allows the AOFM to buy into tranches of loans packaged by non-banks and smaller lenders, The Australian reported. Non-banks can’t access the existing term funding facility because they do not have RBA settlement accounts.

    Nathan Walsh, co-founder of digital lender Athena, told The Australian that the term funding facility was skewing competition and functioning as a “massive subsidy” to the banks.

    “It does very strongly skew to the banks,” he said.

    Athena wants the Treasury to address the term funding facility’s unintended consequences to ensure that the policy is competitively neutral, The Australian reported.

    Original Article