ANZ bought back $89m in stressed mortgages

ANZ has emerged as the second big four bank that went about quietly buying back stressed mortgages from its securitisation trusts when COVID hit.

ANZ has emerged as the second big four bank that went about quietly buying back stressed mortgages from its securitisation trusts when the COVID crisis hit. Picture: NCA NewsWire / Gaye Gerard

ANZ has emerged as the second big four bank that went about quietly buying back stressed mortgages from its securitisation trusts when the COVID-19 crisis hit, potentially breaching prudential standards and earning it a slap on the wrist from the bank regulator.

Over May and June, ANZ bought back $89m worth of stressed mortgages from securitisation trusts, which are packaged up as residential mortgage-backed bonds and then sold to investors, the lender said on Thursday.

The admission comes weeks after The Australian revealed that CBA had bought back $80m worth of home loans between March and July, taking the view that interest was being capitalised on the deferred loans and that it would be prudent to buy them back rather than breach the rules of the trust, as it saw them.

The $100bn-plus securitisation market effectively froze in the wake of the global financial crisis, with investors nervous about the health of loans sitting in port­folios. The domestic market has slowly returned back to life in recent years as interest rates have fallen and lending losses have remained low. However it remains below its pre-GFC peak of nearly $200bn.

Packaging home loans up into mortgage-backed securities helps banks remove risk from their balance sheet.

But the regulator only allows lenders to repurchase mortgages from their securitisations under limited circumstances, including that the borrower is in good standing.

After learning that some lenders were buying back home loans that were on repayment holidays due to COVID-19, APRA sent a letter ordering them to stop, saying the move provided “implicit support” to securitisations, breaching prudential standards.

“APRA has recently identified that some authorised deposit-taking institutions repurchased residential mortgage loans that were subject to repayment deferral from their securitisations,” the regulator said in its letter.

“This represents implicit support” which is “inconsistent” with the prudential standards, it said.

Both lenders stopped buying back the loans when APRA released the new guidance in July.

“Some of (the COVID-19) customer requests for assistance resulted in loan terms being extended and consequently were repurchased from the securitisation pools,” ANZ told the market.

“ANZ has ceased repurchases of any loans where COVID-19 assistance is being provided.”

The loans it bought back represented 4.5 per cent of all its mortgages securitised in external RMBS transactions.

The action also pushed APRA to keep closer tabs on action ANZ takes on its securitisation programs.

“Going forward, in addition to this disclosure, APRA requires ANZ to obtain additional external review of its securitisation programs prior to issuing any further RMBS, using an independent assessor and with a review scope to be agreed with APRA,” ANZ said.