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    RBNZ Outlines Next Steps to Policy for Residential Mortgage Obligation

    August 12, 2019

    RBNZ published an update on the proposal to introduce a high-grade residential mortgage-backed securities (RMBS) framework for New Zealand through the introduction of Residential Mortgage Obligations. The update includes a summary of the key issues remaining with regard to the Residential Mortgage Obligations policy and outlines the next steps to a policy for simple, transparent, and comparable mortgage bonds. The update (Appendix A) also presents a summary of the responses to questions that RBNZ posed in the second consultation on residential mortgage obligations standard. In addition, it summarizes (in Appendix B) the comments and markups received on the draft terms and conditions of the residential mortgage framework. RBNZ aims to finalize the policy framework by the end of 2019.

    The update summarizes responses received to the second consultation on the Residential Mortgage Obligations standard, which was launched in November 2018 and ended in March 2019. The final standard aims to reduce contingency risks for RBNZ as a lender of last resort, ensuring financial intermediaries supply sufficient high-quality and liquid assets. As part of the two consultations on this standard, RBNZ received a total of 20 submissions, with 14 submissions on the first consultation and 6 submissions on the second consultation. The feedback from issuers, investors, and other market participants to this second consultation has been constructive and respondents were broadly supportive of the introduction of a high-grade residential mortgage-backed securities framework for New Zealand, also known as the Residential Mortgage Obligations or RMO. 

    RBNZ has also decided to update the repo-eligibility conditions for RMBS in the transition to the final Residential Mortgage Obligations policy. This will include enhanced reporting requirements for any RMBS listed as repo-eligible and will require a pre-approval for portfolio changes, issuance, and up-sizing of internal RMBS. The Residential Mortgage Obligations framework will defines a “high-grade RMBS standard” to address the shortage of high-quality liquid assets (HQLA) in the New Zealand markets, offer mortgage lenders an additional funding tool, and support developing deeper private-label mortgage bond markets.

     

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    Keywords: Asia Pacific, New Zealand, Banking, Securities, Residential Mortgage Obligations, Residential Mortgage Backed Securities, Mortgage Bond Standard, Responses to Consultation, RBNZ

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