Jonathan Kearns, RBA's head of domestic markets gave the keynote address to open this year's Australian Securitisation Forum conference, pointing to the bank's role in keeping RMBS markets open.

Kearns said: "Overall, securitisation markets continued to provide competitively priced funding for Australian non-bank lenders throughout the pandemic."

Banks’ funding profiles and liquidity management were much more resilient, having benefited from banking reforms implemented since the GFC, Kearns said, adding that the policy with the most immediate effect on securitisation markets was the A$15 billion Structured Finance Support Fund, administered by the AOFM. 

Now, he said, it's time for the Reserve Bank to revert to a more ‘business as usual’ approach to supporting the RMBS sector. Nevertheless, he acknowledged the residential mortgage backed securities market funds around 70 per cent of mortgages issued by Australian non-bank lenders and backs 5 per cent for non-major bank lenders. 

Kearns said the speed of implementation of the SFFS program had helped restore securitisation market conditions quickly, along with policy actions taken by the Reserve Bank to lower the structure of interest rates in Australia: for example, the reduction in the cash rate, and the Term Funding Facility that provided low-cost funding to banks. 

Non-bank RMBS had already been increasing as a share of issuance for several years, and this picked up further over the pandemic. In Q3 2021, non-banks issued $9.6 billion of RMBS – several times the issuance of five years earlier. And non-bank issued securities now comprise about half of the outstanding prime RMBS stock.

"This has implications for the characteristics of the Australian RMBS stock; non-bank RMBS typically have lower average seasoning and higher loan-to-value ratios than bank RMBS," Kearns said.

While housing prices have declined, they are still 20 per cent higher than at the onset of the pandemic. Meanwhile, the unemployment rate is at its lowest level in nearly 50 years, which will limit entry into arrears, which currently stand at record-low levels.

"The past few years have reinforced how quickly economic and financial conditions can change," Kearns said.

"One change that we know is coming is the wind-down of the CLF to zero at the end of 2022. The CLF was introduced in Australia in 2015 because there were insufficient high-quality liquid assets for banks to hold to meet their liquidity coverage ratio requirements. 

With the increase in government debt outstanding, the CLF is no longer required. 

There is another development that Kearns was keen to mention. From today, 1 December 2022, floating rate notes and marketed asset-backed securities issued on or after 1 December 2022 that reference BBSW must include robust fallback provisions to be eligible as collateral in the Bank’s liquidity facilities.

Another key development will be changes to the use of self-securitisations, where the prices are calculated using an internal model, which “captures the behaviour of spreads in the secondary market for asset-backed securities as a key input". 

At the start of the TFF in March 2020 when there was substantial volatility in markets, the RBA decided to freeze the modelled prices of notes issued from self-securitisations for