Non-bank lenders should get government support

Leading economists have called on the government to support small mortgage lenders by creating funding scheme similar to those operating in the US and Canada. Concerned about diminishing competition in the home loan market, Joshua Gans from the Melbourne Business School and executive director at Rismark International Christopher Joye, said that such a scheme could use its AAA rating to make funds available to lenders and help keep them in business. Non-bank lenders largely use mortgage-backed bonds to fund their operations but there have been almost none issued since last year. From the start of the global credit crunch in August, non-bank lenders have seen their share of the home loan market shrink from 25 per cent to 10 per cent. Competition from smaller lenders helped to drive down the margin banks charge for mortgages on top of the bank bill rate from 4 per cent in the early 1990s to 1.4 per cent now.

Source: The Australian