You know about banks, even building societies and credit unions. But what about non-bank lenders, also known as mortgage managers? Who are they, how do they work and do they offer a solid alternative to bank home loans?
Let’s start by discussing how banks operate. Banks, building societies, credit unions, these are all known as ADI’s, authorized deposit-taking institutions. ADI’s use deposit monies to lend out as loans, obviously a higher interest rate is charged on the loan so the ADI makes a profit.
However the reality is – ADI’s have more demand for loans than their deposits can cater for. So, the ADI needs to get the additional funds to lend out from somewhere, they go to the global markets and sell their bank home loans as part of a process known as securitization. This is the same process that non-bank funders use. Only non-bank funders do this for 100% of their loans, whereas ADI’s do it for perhaps 50% of their loans.
In recent years in Australia, the federal government has supported the non-bank sector by purchasing many of the non-bank residential backed mortgage securities. This is a huge support that helps ensure the availability of the non-bank home loans, even when global cost of funds are high.
In addition, as a result of the National consumer Credit Protection Act 2009, now ADI’s and non-bank lenders are all regulated by ASIC. When you deal with a non-bank such as State Custodians Mortgage Company you can be confident that you’re in good hands.