A Brisbane-based residential mortgage business, Firstmac, has set what appears to be a new record for the largest residential mortgage-backed securities (“RMBS”) issued by an Australian non-bank.
Such was the market hunger for yield, the $2 billion issue was upsized from the $1 billion that was telegraphed to potential investors a week ago.
The deal was segmented into eight different tranches, with each tranche representing mortgages of a certain risk-type. The $1.7 billion Class A1 tranche holds the bulk of the mortgages and it is rated as having the lowest risk. The $10 million Class F tranche is rated the highest risk.
The Class A1 tranche was sold to investors at yield of 1m BBSW + 73bps. Firstmac claimed this to be “the tightest margin paid by any non-bank since the GFC in 2007.” Unfortunately for Firstmac, there has been at least half a dozen RMBS deals done by non-banks at 1m BBSW + 70bps or lower in recent years, the most recent by Columbus Capital just over a week ago.
An indication of how investors are chasing yield is that there were 29 backers for the deal, with six of them first-time participants. Mortgage originators such as Firstmac have been taken advantage of this demand, with seven RMBS transactions in April alone.
According to reports, there were as many as five other borrowers in the market at around the same time which would suggest that the hot property market is increasing the level of funding required by home buyers. The heat in the property market is starting to raise concerns about potential regulatory intervention. However, for the moment non-bank lenders are keen to do as much business as they can.