Reserve Bank of Australia's Head of Domestic Markets Department, Marion Kohler recently gave an insightful presentation about Mortgage Insights From Securitisation Data to the Australian Securitisation Forum in Sydney.
Marion announced that the securitisation data has been particularly useful in three areas: to assess risks on the Reserve Bank's balance sheet; to assess trends in the characteristics and quality of housing lending; and to assess the competitive environment in the mortgage market.
What are these data? Most of these securities are backed by residential mortgages. The dataset includes two types of residential mortgage-backed securities (RMBS): ‘marketed securities’, which have been sold to external investors, and ‘self-securitised’ deals. Self-securitisations are retained by the bank that created them and are used solely to access central bank liquidity. The Reserve Bank accepts self-securitised assets for this purpose for a number of reasons, most notably a shortage of securities considered to have sufficient credit quality and liquidity. However, the Reserve Bank accepts as eligible collateral only the highest credit quality asset-backed securities, that is those with a AAA, or equivalent, rating.
In Marion's speech she discussed the idea that loans underlying securitisations are not necessarily representative of the entire mortgage market across all its dimensions. In particular, the choice of mortgages in the collateral pool may be influenced by the way credit ratings agencies assign ratings, investors' preferences and also by the Reserve Bank's repo-eligibility framework. However, self-securitisations, which represent the bulk of the dataset, cover a significant share of all mortgages in Australia.
This dataset has provided a rich source of detailed information that can help Marion and her team at the Reserve Bank of Australia to better understand broader developments in the mortgage market. One area is in assessing trends in the characteristics and quality of housing loans that require loan-level data. Another area where these data are valuable is in assessing the competitive environment in the mortgage market.
Marion's full speech can be read here.
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