The manager of the Howard Mortgage Fund, Fidante Partners, has started returning the fund's capital to unit-holders. The winding down of one of Australia's oldest mortgage trusts, and once its largest, is another sign of the terminal decline of the mortgage trust industry.Fidante wrote to unit-holders, in November, advising them that it had ceased to offer investment in the fund to new unit-holders and that existing unit-holders would no longer have the option of reinvesting their monthly income distributions.Last week, Fidante made an initial repayment of 10 cents per unit - a 10 per cent return of capital. It plans to repay capital of five cents per unit each month from February.Fidante has avoided saying that it is winding up the fund. In its November letter to unit-holders, it said it would continue to "monitor all aspects of the fund's operation on an ongoing basis."However, in response to a query from Banking Day, Fidante spokesman Stuart Barton said: "Given that the commercial lending environment remains constrained, the bank term deposit war is ongoing, the government [deposit] guarantee was made permanent and redemption requests have increased over the past 12 months, the board believes it's in the interests of unit-holders to have their capital returned pro rata."Before the financial crisis the mortgage trust industry represented a A$20 billion pool of capital for mortgage finance, but trusts suffered heavy outflows during the financial crisis, as investors moved their money into guaranteed deposits, and now only a handful of fund managers remain. Total funds under management fell 24 per cent in 2010 and 19 per cent in 2011.Sentiment towards the sector is bearish. A Morningstar review, published last September, said: "We believe that a mortgage trust is only compelling if there is sufficient premium above cash to justify the additional default risk and illiquidity of mortgages. Over most time periods, the mortgage funds we assessed either underperformed the UBS bank bill index or delivered only a miniscule premium for added risks."In November, Australian Unity Investments announced that it would close its Mortgage Income Trust and Wholesale Mortgage Income Trust. It will return all capital to investors through regular payments that are expected to take three or four years. Australian Unity's general manager of property, mortgages and capital markets, Mark Pratt, said in a statement: "Market sentiment since the global financial crisis, exacerbated by the introduction of the bank guarantee, meant they were unlikely to regain their former appeal."Other funds that are being wound up are Balmain Mortgage, Colonial First State Income and Perpetual Mortgage.