itsa figures for oct to dec 2011, page-10

PP, some thoughts about FSA and the home finance sector.

I had doubt about FSA getting into this area and whether it was getting out of their 'core' area.. But after some research, I think it is an area that isn't being well-serviced by the market.

Non-conforming home loans are shunned by the major banks and major resellers. And whilst this appears to be the 'risky' end of the market, I think that the concept of non-conforming has to be viewed in relation to the very tight loan criteria of the majors. What is non-conforming now would have been great business for a bank in 2008!

Credit was much loose pre-GFC. With a booming world economy, no one wanted to miss out on writing the loans. 95% or 100% LVR? No problems! Limited savings history? Don't worry about it! But of course, this all changed after the GFC...

Since then, quite understandably, writers of home loans have gone VERY conservative. Feedback I get from those in the industry says that even rock solid professionals with lots of equity, who can easily service loans have to jump through even higher hoops to meet banks' lending criteria. And many potential customers, non-conforming customers, are being turned away.

IMO, there is a large opportunity at the non-conforming end of the market, due to the excessive conservatism of the prime lenders. FSA's experience so far has been a tiny amount of defaults, and a modest average LVR. I am quietly confident this is a segment of the market where growth can be achieved, even in a cooling housing market.

Yaq