Athena anchors growth with diversified funding sources

Athena issued its first public residential mortgage-backed securities transaction in September. The deal initially launched in June but the issuer temporarily put the process on hold due to market volatility. Athena’s Melbourne-based cofounder and chief financial and operating officer, Michael Starkey, says the firm is committed to being a programmatic issuer but it also favours a diversified mix of funding – including leaning into private placements and whole-loan sales.

Athena’s mortgage book specialises in prime lending. How has asset quality performed over the recent upswing in interest rates and inflation? Does the lender have any concern that arrears and defaults could rise?

Athena’s loan book is comprised completely of prime residential mortgages and we have no low-rate, fixed-rate loans. We continued to observe market leading low arrears and hardship levels during the recent upswing in interest rates and inflation.

Our 90-plus day arrears rate excluding hardships was 0.007 per cent in June, down from 0.019 per cent in April, while the same rate including hardships was 0.015 per cent in June, down from its peak of 0.136 per cent in October 2020. We expect this trend will continue. We believe this is testament to our strong credit policy and delinquency management, which remain core to our value proposition.

What is Athena’s outlook for the Australian mortgage and housing market over the next 12 months?

We expect continued pressure on property prices and expect the market to come back by about 15 per cent from its peak. This needs to be put in the context of the increments experienced in the last two years.

Ultimately, with unemployment and underemployment at record low levels, and with migration set to increase again, we expect the market to dip and then stabilise. Other factors, such as increased construction costs and low rental vacancy rates, will begin to put upward pressure on the price of housing stock at some stage.

What are Athena’s growth plans and how does it plan to build scale?

We expect to end the calendar year at around A$4 billion (US$2.7 billion) of loans and we are excited by our growth prospects for 2023. Our launch strategy was focused on the direct lending channel but we have since introduced broker-out distribution via Athena Select and broker-in with Sympology. We are also extending our product range and we have exciting partnership announcements coming shortly.

On the funding side, Athena’s partnership with Newcastle Permanent Building Society (NPBS), inked in 2020, was a unique wholeloan funding arrangement for the Australian market. What are the latest developments with this relationship and how has it evolved since 2020?

Since the initial deal, we have completed about A$700 million in whole-loan sales over three transactions. Our partnership with NPBS remains strong, as does our whole-loan sale proposition more broadly. It is a key pillar in our funding strategy.

Athena was exploring a debut deal in the public securitisation market in June, postponing pricing before an eventual print date in September. What is Athena’s securitisation strategy and does it expect to have a regular cadence in the public capital market?

Athena conducted two private placement transactions in 2021, totalling A$700 million. In mid-2022, we elected to defer the launch of the Olympus 2022-1 transaction due to market uncertainty at the time. But we subsequently launched and priced the deal, which settled on 28 September.

We intend to be a regular, programmatic issuer into global, public RMBS [residential mortgage-backed securities] markets as well as continuing to diversify our funding via our existing whole-loan sale programme.

Athena’s deployment of financial technology to originate and manage its loan book is a differentiating feature among lenders in the Australian mortgage market. Has the company added any new or innovative features to its platform in recent times?

Over the last 12 months, we have introduced fixed-rate lending, offset sub-account, NPP [new payment platform] fast payments and the Athena mobile application.

Over the next 12 months, we will be expanding our product range into new segments and adding features – including greater than 80 per cent loan-to-value ratio mortgages, split loans and targeted investor propositions.