Momentum Media recorded a special podcast episode featuring Greg Medcraft, chairman of aggregation company Australian Finance Group (AFG) and former chairman of the Australian Securities & Investments Commission (ASIC) for a fascinating episode of the Mortgage and Finance Leader podcast.
Hosted by Momentum’s managing editor for mortgages, Annie Kane, Mr Medcraft passionately called for the creation of a public Residential Mortgage Backed Securities (RMBS) system in Australia, shedding light on how this initiative could revolutionise the mortgage lending landscape.
The securitisation specialist - who has previously held roles as Société Générale's Global Head of Securitisation, the CEO of the Australian securitisation forum and co-founder of the American securitisation forum - delved into the pressing need for a public securitisation market in Australia to create a more equitable funding model for mortgage lenders and reduce costs for borrowers by enhancing competition.
Drawing parallels with countries like Canada, where a public RMBS system had thrived for 30 years, Mr Medcraft emphasised the positive impact such a system could have on fostering a level playing field between large banks and smaller lenders.
Canada's public RMBS market has not only provided a stable funding model with a funding margin of approximately 0.3 over the cash rate but has also attracted diverse investor classes, he said.
The AFG chairman highlighted that the Australian public RMBS system could similarly entice Australian pension funds and super funds to invest in RMBS, due to its government guarantee "backstop" and the appeal of supporting housing through liquid, long-term fixed-income securities.
In the podcast, Mr Medcraft underscored the potential of a public RMBS system to boost Australia's capital markets, stating: "In Canada, 50 per cent of mortgages are funded through the capital markets. In Australia, I think it is 10 or 15 per cent. So, it develops our capital markets and accesses our funding base... So I see a lot of potential in it."
While acknowledging that larger financial institutions might initially resist such a scheme, Mr Medcraft believed that the environment in Australia at this moment in time - with discussions on productivity, competition, and cost reduction - presents an opportune moment to consider this transformative change.
In fact, he predicted that a public RMBS system could lead to a decrease in mortgage costs, citing a 70 basis point reduction in mortgage rates in Canada as evidence of the positive impact on competition.
The securitisation specialist explained that a public RMBS system would act as a catalyst for change, compelling larger banks to lower their rates in response to the competitive pressures introduced by smaller lenders and non-bank institutions. This, in turn, would create a healthier and more competitive banking system, ultimately benefiting consumers.
In addition to discussing the potential for a public RMBS system, Mr Medcraft also highlighted the essential role played by mortgage brokers in democratising finance and driving competition in the finance and mortgage market. He emphasised the value brokers brought to consumers by negotiating lower rates and providing a trusted service.
As chairman of AFG, Mr Medcraft recognised the importance of brokers in challenging the dominance of major banks and ensuring that borrowers received the best deals possible. He predicted that broker market share could continue to rise, reaching 80 per cent, driven by the trust and value that consumers see in them.
Reflecting on his new position as AFG chairman - which he took up earlier this year - Mr Medcraft expressed his commitment to providing Australians with a fairer deal on their mortgages.
AFG, he noted, started as a disruptor in the mortgage origination space, and the organisation continued to pursue its mission of delivering a fairer financial future for all Australians.
You can tune in to the Mortgage and Finance Leader podcast episode featuring Greg Medcraft for an insightful discussion on the potential transformation of Australia's mortgage market and the vital role of mortgage brokers in promoting competition and consumer choice: