Liquidity in the Australian mortgage-backed securities market: is it time for AussieMac?

Joshua Gans and Christopher Joye from the Melbourne Business School argue that the markets for primary residential mortgage-backed securities in Australia are not operating efficiently.

"Under our proposal, the Commonwealth would guarantee the credit worthiness of an Australian government agency, which we loosely call ‘AussieMac,’ thereby lending it Australia’s AAA credit rating. This would allow AussieMac to issue substantial volumes of very low cost bonds into the domestic and international capital markets. The funds raised through issuing these bonds could be used to acquire high-quality AAA-rated Australian home loans off the balance-sheets and warehouse facilities of lenders (including the majors). AussieMac would, therefore, serve to guarantee liquidity in the Australia home loan market in the event that other private sources of capital were to supply insufficient funding, such as is currently the case."

Australian Financial Review article

Full paper: Aussie Mac: A Policy Proposal for Australia