Mortgage trusts ready to lend

Mortgage fund managers are restructuring their products and are planning to get back into the lending market after an absence of more than a year.

Within the next couple of weeks Balmain Funds will issue a new product disclosure statement for its $140 million Balmain Mortgage Trust. Units will be sold on a term basis, with investors having the option of an 18- or 36-month term.

The trust was formerly Mariner Mortgage Trust but unit holders voted in January to pass the management rights to Balmain Funds, which is part of Balmain NB Corp.

The chief executive of Balmain Funds, John Thomas, said:  "It is a great time to be re-opening the fund because there is not much competition for commercial mortgage business.

"We have an opportunity to write quality mortgages at great spreads at current valuations."

Australian Unity expects that its Mortgage Income Trust will be writing new loans in the first quarter of next year and the Perpetual Monthly Income fund is already writing a small volume of loans.

The Balmain Mortgage Trust provides variable rate loans on terms of between three and five years.  The maximum loan to valuation ratio is 70 per cent and the average is 61 per cent. The fund has a "preferred" loan size of $750,000.

Balmain's move to accept funds on a fixed term basis is one of a number of different approaches being adopted by mortgage fund managers as they work to overcome the mismatch of assets and liabilities in their funds.

In June, Australian Unity introduced a monthly redemption facility for its Mortgage Income Trust, with one per cent of the value of the fund available for redemption each month, as a permanent arrangement. In October the manager increased that amount to two per cent and it has said its aim is to get the figure to four per cent a month.

Perpetual has settled on quarterly redemption for its Monthly Income fund, with all available cash to be allocated for redemption on a pro rata basis.

Some managers are yet to finalise their long-term arrangements. A spokesman for Challenger, Stuart Barton, said the group was working on a couple of options for the Challenger Howard Mortgage Trust. Colonial First State and ING Australia are still working with the interim arrangements they put in place last year.