$4b rescue to boost mortgage competition

(AAP) The federal government's $4 billion financial package for second tier banks and other mortgage providers will boost competition in the mortgage market, Treasurer Wayne Swan says.

Through the government's asset manager - the Australian Office of Financial
Management (AOFM) - smaller banks and mortgage providers will be able to tender
their mortgage-backed securities, rather than wait for struggling financial markets
to return to normal.
Mr Swan said treasury officials would start consultations with the lending industry
on Monday morning to get the package running as quickly as possible.
"This is an important measure to introduce competition in the mortgage market," Mr
Swan told reporters in Brisbane.
He said Australia's four major banks were in a good financial position to ride out
the global financial market meltdown.
However, he said the second-tier or smaller banks and other mortgage providers were
experiencing difficulty obtaining funding in global markets to provide mortgages due
to the financial crisis.
Mr Swan said the government would not allow the funds to be used for
low-documentation loans, which had been the subject of a sharp increase in mortgage
defaults in areas like western Sydney. "This money won't be made available for
low doc loans.
"This money will be invested in AAA-rated residential mortgage-backed securities.
"This is an investment which will bring a return to the taxpayer," Mr Swan said.