Australia is prime territory for a subprime lending push by a U.S. mortgage banker, a Beverly Hills, Calif., advisory firm says.
Hamilton, Carter, Smith is looking for mortgage bankers or institutional investors to participate in a joint venture to finance nonconforming, or subprime, home loans in Australia.
Australia's five banks overlook "tremendous opportunities" in the country's nonconforming mortgage market, said Gregory J. Bennett, president of Hamilton, Carter, Smith. He put the market's size at up to $19 billion a year.
Mr. Bennett is seeking U.S. partners for Future Mortgage Ltd., a firm founded last spring by a group of Australian businessmen. It intends to originate and securitize nonconforming loans on single-family homes that are owner occupied or used as investment properties. Hamilton, Carter, Smith is putting together offering documents.
Though U.S. mortgage company executives agreed that the venture may have merit, they said Hamilton, Carter, Smith may find difficulty gaining support among mainstream lenders.
Joining an Australian venture "does not have appeal to us," said Willis Newton, senior vice president at First Republic Bank in San Francisco. "We're focused solely on being a domestic lender."
Mr. Bennett said many of the loans that Future Mortgage would finance would rate as prime, not subprime, under U.S. criteria.
The situation, he said, is like the U.S. subprime market of 10 years ago, when profit margins were wide and there were few lenders.
For three to five years, Mr. Bennett said, a U.S. lender could take advantage of what is virtually an open market.
in Australia, he noted, most borrowers prefer to make payments through direct withdrawals, or direct debit, rather than by mailing monthly payments. And Herman Churchwell, chairman of Hamilton, Carter, Smith, noted that Australians are used to an every-other-week schedule, which would give their lender more float with the borrowed funds.
Mr. Churchwell said Australians are less disposed than U.S. borrowers to seek bankruptcy protection. "There appears to be a higher regard for the mortgage payment and the mortgage obligation than we're accustomed to in the U.S.," he said.
Australia has lower prepayment, foreclosure, and delinquency rates than the United States, Mr. Churchwell said.