The Reserve Bank of New Zealand will not introduce a proposed new mortgage bond instrument, known as Residential Mortgage Obligations, following consultations on mortgage bond collateral standards and an internal review of existing collateral frameworks.
The RBNZ said that since it began consultations, it has enhanced existing mortgage bond collateral standards via changes to repo-eligibility criteria, including a new approval process and requirement for a more detailed Residential Mortgage-Backed Securities reporting template.
“The Reserve Bank will instead continue to seek enhancements to the current generation of RMBS to ensure it remains fit-for-purpose and enduring,” according to today’s statement.
New Zealand’s shallow RMBS market is dominated by non-bank lenders, with the country’s major banks and Kiwibank using offshore covered bonds and self-securitised or internal RMBS (I-RMBS) for their mortgage-backed funding needs since the financial crisis.
The RBNZ suggested back in November 2017 to replace I-RMBS with RMOs, which are a cross between covered bonds and RMBS.
RMOs were intended to improve the risk position of the RBNZ by promoting the use of higher quality and more liquid mortgage bonds as collateral in the bank’s lending operations.
“The RMO framework defines a high-grade RMBS standard to address the shortage of high-quality liquid assets in the New Zealand markets, offer mortgage lenders an additional funding tool and support developing deeper private label mortgage bond markets,” according to the RBNZ’s draft proposals.
Whilst RMO consultations were ongoing, banks had no interest in adding public RMBS to their wholesale funding tool kits, given the time and resources required to establish new programmes. This could potentially change with RMOs now off the agenda.
Four non-bank lenders have sold New Zealand RMBS since 2010.
Avanti and Resimac have issued five apiece, Basecorp Finance printed two, in 2021 and 2022, while Bluestone Mortgages NZ, which is owned by US private equity firm Cerberus Capital Management, is readying its third offering.