The Australian Office of Financial Management (AOFM) will invest in Australian residential mortgage backed securities (RMBS), as part of the Government's plan to boost competition in the lending sector.
The AOFM will purchase only newly-issued, prime, triple-A rated RMBS, in two initial tranches of $2 billion each, Treasurer Wayne Swan announced.
Purchases may be subject to a per-issuer cap to ensure diversity in the new issuance, and provide a wide range of lenders access to the facility, he said.
"This is a temporary initiative that responds to highly unusual conditions in international capital markets, and their impact on Australia's mortgage lending market," Treasurer Swan said.
"I expect that the RMBS purchased by the AOFM will be held until redeemed or sold into secondary markets, as and when market conditions normalise."
The Mortgage and Finance Association of Australia (MFAA) is looking forward to working with the Government to implement the initiative, chief executive Phil Naylor said.
"The lack of available credit at the moment has severely impacted non-bank lenders in particular, because they do not take deposits from their customers like the banks do," he said.
"The Government purchase of mortgage-backed securities will certainly help to free up some liquidity in the market."
Quarterly issuance of Australian RMBS has fallen to around $2.5 billion since mid-2007, compared with $18 billion over the previous year.
