Non-banks in funds fight for bigger slice of mortgage market

Angst among non-bank lenders over COVID-19 funding costs has led to a push for change.

Non-banks are stepping up efforts to get more access to cheaper funding by taking their push to Treasury, with the aim of better competing against the big banks on mortgage pricing.

During the COVID-19 turmoil the banks have had access to the Reserve Bank’s $200bn term funding facility, which smaller lenders say is tipping the scales too much in favour of the larger incumbents.

When the RBA lowered the cash rate to a record low of 0.1 per cent early this month, it also said the rate on drawings under the term funding facility would drop to 10 basis points. Small lenders say that exposes a sharp differential in key parts of mortgage funding costs, which for non-banks in securitisation markets for prime loans sits at about 130 basis points.

The angst in the market has led a concerted push for a rethink of the measures, and stakeholders are meeting in coming days with Treasury on the topic.

They are keen to talk through 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.

An non-bank lender executive told this column parts of the industry were “getting slaughtered” as they could not compete on mortgage pricing and cash back offers, as the banks drew on the cheap RBA funding and a flood of deposits.

Growth is well down for some non-bank lenders, while the proportion of mortgages that are being refinanced away from them to big banks is markedly growing.

Non-bank lenders involved in the funding push include Mortgage House, Resimac, Firstmac, Columbus Capital and mortgage broker AFG with respect to its own branded loans. The Australian Securitisation Forum and FinTech Australia are also involved.

The federal government — as part of its COVID-19 support measures announced in March — set up the $15bn Structured ­Finance Support Fund to assist non-bank lenders. The fund sees the AOFM buy into tranches of loans, packaged up by non-banks and smaller lenders.

Non-banks can’t access the ­existing term funding facility as they don’t have RBA settlement accounts.

Athena co-founder Nathan Walsh said the term funding facility was skewing competition and acting as a “massive subsidy” to banks. “It does very strongly skew to the banks,” he added.

Athena, which is a digital lender, wants Treasury to revisit the topic and address the term funding facility’s unintended consequences to ensure policies are competitively neutral.

La Trobe Financial chief Greg O’Neill said he would be supportive of the government considering a broadening of access to COVID-19 funding at the same cost as the term finance facility.

“That can only do one thing and that is to assist in getting this emergency money into the economy,” O’Neill said. “These are extraordinary times and it’s all hands on deck.”

A September NSW Land Registry Services report provided insight into why non-banks are up in arms over the funding cost differentials. It showed the major banks had experienced a 60 per cent jump in the level of refinances they won versus a year earlier, compared to a 41.8 per cent slump for non-banks over the same period. Foreign banks also saw a sharp fall.

Josh Frydenberg didn’t directly address questions from this column on the issue of a level playing field for pandemic credit funding, instead highlighting existing ­facilities.

“In addition to our economic support measures such as JobKeeper and the cashflow boost, the Morrison government is investing $15bn through the Australian Office of Financial Manage­ment to enable customers of smaller lenders to continue to access affordable credit,” the Treasurer said.

“This funding complements the RBA’s term funding facility for authorised deposit-taking institutions that also supports lending to small and medium enterprises.”

He said the measures in place — alongside the 50 per cent government-guaranteed loans for small business — were supporting access to cheaper funding for businesses and lenders.

Listing plans

Investment bankers are hopeful 2021 initial public offering aspirant Judo will appoint another adviser for its mooted ASX listing in the new year.

The Australian revealed on Wednesday that business-focused bank Judo was targeting an IPO in the second half of 2021, and had tapped Goldman Sachs to assist.

A fourth funding round seeking $200m-$300m from investors would give the challenger bank a valuation of more than $1.5bn.

Elsewhere in IPOs, fund managers are being told to expect non-bank lender Liberty Financial targeting an ASX valuation based on a multiple of 11 times forward earnings before interest, tax, depreciation and amortisation.

Broker moves

National Australia Bank has beaten rival Commonwealth Bank to the punch on the divestment of its mortgage broker and aggregator business.

The sale of NAB’s PLAN Australia, Choice and FAST networks, which house about 4100 brokers, to the White family’s Loan Market delivers the combined group about 29 per cent of the market.

The White family own the Ray White real estate group and Sam White is Loan Market executive chairman.

The transaction excludes NAB’s Advantedge white label loans that the broking groups wrote under their own brands.

It follows the marriage of AFG and Connective and comes as CBA looks at strategic options for wholly owned broker group Aussie. CBA is understood to have entertained discussions about merging Aussie with online group Lendi.