Securitisation and RMBS: How Non-Banks Fund Loans

Key takeaways

• Loans are pooled and sold as securities in tranches with different risk and return.
• It is the primary funding channel for Australian non-bank lenders.
• Investor appetite for RMBS directly affects what non-banks can charge.
• Your loan terms do not change if your loan is securitised.

How it works

1. A lender writes home loans and pools them.
2. The pool is sold to a special purpose vehicle.
3. The SPV issues securities in tranches - senior tranches paid first and rated highest, junior tranches absorbing losses first and paying more.
4. Borrower repayments flow through to investors.

The lender frees up capital to write new loans, and the risk is distributed to investors who want that exposure.

Why it affects your rate

When investors demand a higher return for RMBS - as happens when credit markets tighten - the non-bank's funding cost rises and its lending rates follow, regardless of what the RBA has done.

This is why non-bank rates can move out of step with the cash rate, and why they moved sharply during past periods of market stress while deposit-funded banks were less affected.

What it means for a borrower

Practically, very little. Your contract, rate and terms are unchanged whether or not your loan is securitised, and the lender continues to service it. Your hardship rights and AFCA access are unaffected.

The reason to understand it is pricing behaviour: if you choose a non-bank for a long hold, recognise that its rate responds to a different set of pressures than a major bank's.

Frequently asked questions

Will I know if my loan is securitised?

Usually not, and it does not change anything for you. Loan documents typically permit it, and the lender continues to administer the loan.

Is securitisation risky for borrowers?

Not directly. The risk is transferred to investors. The 2008 crisis involved securitised subprime lending in the US market with very different underwriting standards to Australian RMBS.

Does the RBA track this?

Yes - it maintains a securitisation dataset with loan-level information, used for financial stability analysis and as collateral eligibility criteria.

Related reading

• Where Banks Actually Get the Money They Lend You
• Non-Bank Lenders: When They Beat the Banks
• Big Four vs Regional Banks vs Neobanks vs Non-Banks

Sources

• Securitisation dataset — Reserve Bank of Australia
• Financial Stability Review — Reserve Bank of Australia