Macquarie returns to 'low doc' loans

Investor appetite for low quality mortgage loans is returning, with Macquarie's securitisation arm privately arranging a bond containing $500 million worth of 'low doc' loans, the first such issuance since the financial crisis.

On Friday, Macquarie Securitisation sold a $1.2 billion bond with a pool of residential mortgages as the underlying asset.

At least 46 per cent of the loans in the PUMA Masterfund S-8 bond are low doc loans, a term which is used to describe loans structured with lower approval standards.

The remainder are 'fully verified income loans'. Standard & Poor's rated the bond AAA, apart from $180 million worth of low quality notes for which the rating was not revealed.

The average loan to value ratio - how much of the house's total value was paid for through the mortgage - was 72 per cent.

The mortgages are expected to be paid back over the next 3½ years. Macquarie is not the first financial institution to issue residential mortgage-backed security (RMBS) since the financial crisis, but this is one of the first offers to contain such a high proportion of low-quality loans.

Division director of Macquarie's debt origination and structuring team, Kevin Lee, said the bond was privately arranged for a group of institutional investors, who have not been named.

''We have not seen public transactions [with] this amount of low doc [loans] for a long time,'' he said.

''But there are private investors who have effectively said they are happy to take them ...

''It is not necessarily reflective of what the broader market will take at this time.''

The RMBS market is a vital source of funding for Australia's non-bank lenders, but it froze in late 2008 after America's sub-prime crisis grew into a financial industry crisis.

Australia's non-bank lenders struggled to find buyers for their RMBS until September 2008, when the federal government ordered the Australian Office of Financial Management to purchase at least $8 billion worth.

However, the office would only purchase RMBS if the bond consisted of no more than 10 per cent low-doc loans.

This condition was lifted in December 2009 when the government announced a further $8 billion of funding for the RMBS program.

Commercial issuers have sold nearly $5 billion worth of RMBS so far this year, according to Westpac Credit Research, including a $1.1 billion issuance by Bendigo Adelaide Bank and a $650 million issuance by Bankwest last week.

- © Fairfax NZ News