The Melbourne Business School’s Centre for Ideas and the Economy (CITE) has suggested that the Government establish a government-owned institution to support the supply of securitised funding capital for home mortgages, which they have called AussieMac.

Professor Joshua Gans and Christopher Joye of CITE submitted the proposal to the House of Representatives Economics Committee inquiry into competition in the banking and non-banking markets.

Their proposals have been supported by the Mortgage and Finance Association of Australia, the Australian Securitisation Forum, and the chief executives of the Bank of Queensland and Aussie Home Loans, David Liddy and John Symond.

Gans and Joye have said that the measures will restore competition in the marketplace by providing a minimum level of liquidity, and therefore security, to the residential mortgage backed securities (RMBS) market.

The RMBS market has provided up to 20 per cent of the funding for Australian home loans and generated capital for banks, building societies and non-banks to expand lending for home mortgages. However, global financial instability has meant that RMBS has disappeared as a source of funding for lenders. This has caused a rise in home mortgage funding costs and a reduction in competition in Australia’s home mortgage market.

According to the proposal, more competition would enhance housing affordability, provide an efficient source of funds to corporates and small to medium enterprises and protect Australia from future financial crises.

The report said: “The Commonwealth needs to investigate … government institutions that can be introduced to support the provision of a minimum level of liquidity in the economy given the emergence of the new RMBS market.”