Mortgage managers and originators say they are taking the news of Macquarie Bank’s decision to quit the mortgage market in their stride, insisting they had multiple funding sources and could replace the Macquarie funding without feeling any impact on their businesses.

After weeks of background chatter that a strategic shift was in the wind, Macquarie Bank yesterday announced that Macquarie Securitisation would “wind back” its Australian residential mortgage securitisation services. Macquarie cited the increased cost of funding mortgages and difficult conditions in the global mortgage securitisation market.

Macquarie said it will continue to provide a “full service” to its 95,000 mortgage borrowers and will continue to fund new loans for its most important wholesale partners – Aussie Home Loans and Virgin Money.

The head of Macquarie’s banking and financial services group, Peter Maher, said the bank’s mortgage portfolio was funded predominantly through securitisation.

Maher said: “Deteriorating conditions in these markets over the past six months have resulted in a sharp rise in the cost of funding mortgages, and significant reductions in the availability of funding from both the domestic and international mortgage securitisation markets.”

Macquarie Securitisation had a 2.6 per cent share of the Australian mortgage market at September 2007 and a loan book of $23.6 billion.

The Macquarie wholesale mortgage business was one of a few long-term achievers in a market crowded with challengers to the dominance of the largest banks. Over the last six years Macquarie expanded its share of the home loan market by almost half and was one of the few challengers – along with ING Direct, Rams, and Adelaide Bank – to achieve consistent growth; or at least until the credit shock arrived seven months ago.

Maher said the bank’s securitisation funding vehicle, Puma, would continue to manage existing securitised loan portfolios. He said there were no plans to sell Puma.

Aussie Home Loans’ managing director John Symond said he understood Macquarie’s decision. “No one can securitise at a commercial rate now.”

Symond said Aussie was writing $1 billion a month in new loans — $950 million of those came through the company’s brokerage channel and $50 million through Macquarie funding.

“They have said they will continue to provide funding but I would expect it to drop over time. We also have funding lines with Origin and there are plenty of banks that would be happy to extend us some credit lines.”

Origin is an ANZ bank wholesale funder that was itself for sale last year (but is no longer on the market).

The managing director of the mortgage aggregator Australian Finance Group, Brett McKeon, said AFG used Macquarie as one of four funders for a range of AFG-branded loans.

McKeon said:

As far as we are concerned it takes out one business customer. It is an unfortunate situation for Macquarie but there are number of banks in the market that would replace that funding.

There is still plenty of competitive tension. The big five, St George, Suncorp, BankWest, ING and Adelaide Bank are all funding the sort of mortgage lending that groups like ours are doing.

McKeon said the business was still ticking over. AFG wrote $2.5 billion of residential mortgages and $200 million of commercial loans in February. Like Aussie, this is almost all brokered business.

With Rams, Mobius and Macquarie out of the market the view in the industry is that the real pressure point is on the wholesale finance providers that have relied on securitisation. All eyes are on groups such as Challenger to see what will happen next.

One sour note was that some originators that worked with Macquarie were not told of the decision. Allstate Home Loans’ managing director Tony Shield said he heard the news when he was rung by a journalist for a comment.

Allstate is a small Queensland lender with a $600 million book. In addition to its Macquarie funding it has relationships with ING, Adelaide Bank, ResiMac and Challenger.

Shield said the change would not have much effect. “It will not interrupt our day-to-day operations. The products we funded through Macquarie are matched by other funders.”

Peter Fray

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