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Debelle Says RMBS Unlikely to Return to Pre-Crisis Level Soon

Australia’s residential mortgage- backed securities, suffering from global “brand damage,” won’t soon return to levels reached before the financial crisis, central bank Assistant Governor Guy Debelle said.

“The market is slowly returning to life and I believe it will again play a useful role in the provision of credit in Australia,” Debelle told a financial industry forum in Sydney today. “But I do not see it returning to its pre-crisis share of the market any time soon.”

Debelle, who didn’t address Reserve Bank of Australia monetary policy or the economy in his prepared remarks, said the nation’s program of buying mortgage bonds to help smaller home- loan providers fund themselves could be “phased out easily.” In contrast, a federal RMBS guarantee “would be difficult to phase out, creating a commitment that could generate a large contingent liability.”

Securities made from bundles of residential home loans were among those that went sour in the U.S. during the past three years, leading to a bailout of that nation’s financial system as borrowers defaulted on subprime mortgages. Debelle said Australia’s market has suffered from the “brand damage not of its own making” caused by the U.S. meltdown.

While Australian RMBS issuance in 2010 of about $A18 billion ($17.3 billion) is an increase on last year’s A$14 billion, it is “well below” the A$50 billion plus annual issuance prior to the crisis, the assistant governor said.

“The investor base for asset-backed securities is substantially narrower than prior to the crisis,” Debelle said in his address to the Australian Securitization Conference. “But there are still natural investors, both domestic and offshore, that ought to be attracted to the high quality of the Australian RMBS.”

To contact the reporter for this story: Michael Heath in Sydney at mheath1@bloomberg.net Sarah McDonald in Sydney at smcdonald23@bloomberg.net.

To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net

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