The Australian mortgage market continues to gain momentum as players from outside the country step in.
Investors, lenders, and insurers have been cutting deals to position themselves in a country with a high homeownership rate, strong gross domestic product, and maturing secondary market.
Last week, Global Quest Partners, a Tampa-based equity fund, bought 7% of Future Mortgage Ltd., a Noose, Australia, subprime firm.
Hamilton Carter Smith & Co., the Beverly Hills investment banker that has been shopping Future Mortgage, estimated that lenders could make $19 billion of subprime loans annually in Australia.
"In the past five years, a mortgage industry separate from the banks has sprung up," said Greg Bennett, president of Hamilton Carter Smith.
Also last week, PMI Group Inc., a San Francisco mortgage insurer, said it would buy MGICA, the No. 2 Australian insurer. Last month, GE Capital Corp. bought 160 consumer and commercial loan branches in Australia.
In 1998, $34 billion of mortgage loans were made in Australia. About 70% of the country's households own homes, slightly above the United States' record of 66.3%, set last year.
The high homeownership rate can be attributed to government policy, according to a Fitch IBCA report detailing the rating agency's mortgage default model for Australian home loans.
In the past three years, Fitch has rated nearly 20 structured finance transactions in Australia, many of them backed by residential mortgage loans.
Post-World War II programs providing cheap homes for veterans, 1960s and 1970s regulations and grants assisting first-time homebuyers, and the deregulation of the financial market in 1980 all increased homeownership, Fitch reported.
On the downside, borrower credit information is less thorough in Australia, Fitch said. Credit agencies typically get negative information only after a borrower is 120 days late and a loan has fallen into default.
That contrasts with other markets, in which lenders are able to identify chronically late borrowers before default, Fitch said.
Lenders in Australia are in a better position once a borrower does default, Fitch said. They are allowed to pursue the borrower's other assets to recover collateral, which discourages defaulting.
