Low taxpayer risk with low-doc loans
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The government's debt manager says the risk of a US-style housing crisis in Australia is incredibly small.
"Can't claim it is risk free, but we claim our approach minimises the exposure to taxpayer," Australian Office of Financial Management (AOFM) chief executive Rob Nicholl told a parliamentary committee in Canberra on Friday.
Mr Nicholl said the AOFM had no sub-prime loans among the mortgages underpinning the residential mortgage-backed securities (RMBS) in its portfolios.
The parliamentary inquiry was examining the Australian banking sector in the aftermath of the global financial crisis.
A sub-prime loan is one offered to people who don't qualify for a traditional loan due to low credit ratings or other factors.
The collapse of the US sub-prime mortgage market in 2007 was the precursor to the global financial crisis.
Mr Nicholls said the AOFM`s mortgages with at least 30-day arrears were just 1.1 per cent of its portfolio.
He said this was less than that for full document and broader prime loans.
The AOFM's investment in RMBS was $11.1 billion as at August 31, with the mortgage pools backing these investments being $25 billion, Mr Nicholls.
Of these, less than two per cent, or just over $400 million, were low-documentation loans, a type of loan usually given to people who did not gain approval for mortgages from more traditional sources.
Liberal senator David Bushby acknowledged the Labor government was right in boosting the RMBS market following the global financial crisis.
Mr Nicholl said the AOFM had "some good stats" following Mr Bushby's comments that the AOFM had made money on RMBS products.