Residential mortgage lending is one of the largest domestic financial asset classes. Australian housing finance is now over A$1.54 trillion, which is approximately the size of Australia’s GDP and approximately equal to the market capitalisation of the Australian stock market.
A group of industry experts founded Mòrgij Analytics in 2009, after identifying the need for risk analytics to enhance transparency, liquidity and resilience in secured funding markets. In response to the need of global regulators and the market for better risk management systems, Mòrgij Analytics created the Risk Quantification Methodology (“RQM”).
The development of the RQM led to the creation and 2012 launch of our MARQ platform for analysis of residential and commercial mortgages. MARQ is software-as-a-service (“SaaS”) and empowers users to independently assess credit risk and determine the relative and absolute value of mortgage exposures. MARQ provides the following core outcomes on mortgage loans:
- Relative Risk scores
- Expected loss measures
- Risk-adjusted valuations on mortgage pools
- Stress testing
MARQ is web based and offers a robust, easy to use, cost effective and adaptable solution, for users to undertake mortgage data and risk analysis.
The MARQ platform is currently available to all Australian ADIs to assist them meet Management, Board, Regulatory expectations including compliance with APRA’s CPS 220 (Risk Management) and APG 223 (Residential Mortgage Lending).
MARQ also provides risk analysis of Australian public RMBS as data is made available. Due to the RBA’s requirements that loan level data is to be provided on all public RMBS from July 2015, as the loan data is loaded into MARQ, analysis of all those RMBS will be available to MARQ users.
Mòrgij Analytics continues to innovate to meet future markets needs and is currently developing mortgage products to take advantage of new and ‘disruptive’ financial technologies.
Funding and Management of Mortgages
In Australia, the process to fund the buying of a house is relatively consistent across the banking system and has been much the same since the 1980s.
Individuals buy a house by borrowing funds from a bank, which uses deposits, wholesale debt, and equity to provide the funds. The borrower uses the house as collateral for the loan and creates a mortgage in favour of the bank.
The borrower uses mortgage loan proceeds, together with their own funds to pay the seller for the house. The seller deposits the proceeds in a bank. The cycle can then continue for other borrowers to fund house purchases.
In Australia, banks are regulated by APRA and bank deposits are guaranteed by the government (subject to some limitation). APRA requires banks to hold levels of capital against each loan to protect the depositors and the government against the loan not being repaid in part or full.
The lending bank in certain circumstances would also take out mortgage insurance, which insures it against losses on the loan if the loan is not repaid in full.
Regulation, capital levels and mortgage insurance add to the cost of the mortgage to the borrower.
Learn more about the Australian Mortgage Market >