Business booming for non-conforming lenders

Business is booming for non-conforming lenders, which provide home loans to people rejected by mainstream lenders. Liberty Financial has raised $1.1 billion over the past year and issued an additional $400 million of non-conforming and sub-prime residential mortgage-backed securities last Friday. The issue coincides with others released by more traditional lenders recently, such as St George, Suncorp Metway and Credit Union Australia. Australian Mortgage Securities, which includes Wizard Home Loans, will price $900 million by early next week, bringing the month's total issuance for mortgage-backed securities to $3 billion.

Liberty's MD Sherman Ma says his company has seen rapid growth as it serves a new market and one that has been neglected. The potential non-conforming loan market size is about $6 billion. Mr Ma said also that the expectation that the property market is about to burst implies that people should avoid mortgage-backed bonds. These concerns are misplaced, he said, and Liberty has never had a bond default. Holders are protected by measures set down by rating agencies.

According to another non-conforming lender, Bluestone Mortgages, loans are only made to borrowers with genuine reasons for failing to qualify for conventional loans. We don't lend if they can't pay, COO Greg Norrish said. Liberty only processes five applications per day, compared with a traditional lender which might process 20 daily. Overall, the arrears level on non-conforming loans is 7 per cent, compared with 1 per cent on a more traditional loan.