Saffa, exactly what is your concern with the non-bank lenders? Why would it matter who is behind them? There is also a big difference between a non-bank lender being owned by another bigger institution (GE owning Wizard, for example) and the non-bank lender just borrowing from a bigger institution (e.g. RAMS pre-fall).
Just use a bank lender if you're concerned about their funding sources.
Alex
Hi Alex
Although I appreciate you are making a sweeping generalisation here, RHG (previously RAMS) didn't 'borrow from bigger institutions'. RHG raised it's money with a mixture of long term mortgage bonds, and short term extendible commercial papers ie it raised money on the open market, and although it did use various warehousing facilities (giant overdrafts) for settlement of the loans this is not where the loans remained for the long term.
But yes, Saffa, you have raised the question regarding non-bank lenders in a couple of threads.
A Bank is a specific institution operating under certain government imposed regulations and which must provide debit banking facilities, ie it must accept deposits and keep those deposits safe. To do this, a bank must have a certain amount of cash on hand to be able to provide for depositors to withdraw their cash at will
A non-bank is a credit provider. Credit providers come under the Australian Prudential Regulations (among other controls) and are more in the business of lending. You cannot have a deposit account with a non-bank except under certain circumstances
One of those circumstances may be eg a Credit Union or a Building Society, which are also non-bank lenders. To be able to provide deposit facilities for their members, these Unions and Societies run imprest accounts with a Bank eg if you are a Member of the Bandywallop Credit Union, you may have a cheque book which operates through the Credit Union's own bank account with eg the NAB or Westpac.
An imprest account is like running a huge petty cash account. The account holder is the Credit Union, and you have a cheque book on their account with the NAB or whoever.
Non-bank lenders such as Credit Unions and Building Societies lend their depositors' funds (just as a bank does) and also borrow from another lender and then lend that money out in small parcels. Eg the Bandywallop Credit Union may arrange a $50,000,000 loan with the Bank of Bandywallop for a discounted rate. It then makes funding available to it’s Members with a lending margin applied. At the end of the day, if the margin has produced a ‘profit’ for the Union or Society this is returned to the members depending on how the benefits are usually distributed.
Non-bank lenders and finance companies have been around for ever. They are not a new invention. RHG (RAMS) won many awards as Non-Bank Lender of the Year. Other credit providers may be finance providers eg ‘Finance Companies’ but the description depends on the suite of loan products offered by the provider. RHG (RAMS) started offering construction loans in order to comply with the increased product requirements of being a non-bank lender.
All new business with ‘RAMS’ (as from 4th January,2008) is now owned and funded by Westpac, which is a Bank (since 1837, the First Bank in Australia) and is a’ balance sheet’ lender. This means that it lends from money held on deposit. So if you have $1,000 in a bank account with a Bank, and the Bank has 1,000,000 depositors, the Bank has to lend out that $1,000,000,000 in order to earn the income to pay the depositors their debit interest rate, and to meet it’s own operating expenses.
Borrowing costs money no matter whether you are a home loan borrower, or a bank or non-bank borrowing to lend by way of business.
You may find that you borrow from one lender but your mortgage is managed by a third party. Eg I have a loan with Origin, which is owned by ANZ, but the mortgage is managed by Perpetual Trustees.
So when it is all done and dusted, perhaps you are putting the emphasis on the structure of the lender rather than what they can do for you.
It may help to remember which way the river is flowing! Don’t forget, you have their money. They do not have yours.
Cheers
Kristine
