The major evolution from Firstmac’s debut green RMBS – a A$750 million private placement priced in June 2021 – is the nature of the green collateral. The loans backing the new green notes are a Firstmac product that requires the borrower to install rooftop solar panels on the property of sufficient size to place the home in the lowest 15 per cent of emitters based on size, number of bedrooms and other factors such as the presence of a pool.

This standard is set by the Climate Bonds Initiative (CBI) and James Austin, chief financial officer at Firstmac in Brisbane, says the lender verifies that the required solar capacity has been installed by verification of invoices after loan settlement but before adding the collateral to the RMBS pool. He adds that the loan product – which Firstmac will make available for purchases of existing homes but only for new solar installation – is enjoying rapid takeup.

“We are originating around A$100 million a month of these loans,” Austin reveals. “It is a very popular product and we expect regular issuance of RMBS using it as collateral, which could in time include all-green RMBS or fully public transactions.”

The last time Firstmac brought a green RMBS to market all the deal’s tranches were green, but based on less exacting standards. This was a straightforward proxy under which loans written on residential properties constructed after 2014 in New South Wales, Tasmania and Victoria qualified for green funding by virtue of local building standards.

This has been the Australian industry standard for green RMBS since National Australia Bank brought the first such transaction in March 2017. Firstmac used the proxy standard for the collateral in its 2021 deal but also committed to using the proceeds to fund its green lending product. Origination of this product is now of sufficient scale to facilitate like-for-like funding.

Austin tells KangaNews: “The reality is that the base CBI approach – by building code – doesn’t change anything in and of itself because the homes are already built when the loan is written. The ‘mark two’ collateral we are using can only qualify as green if it is actively reducing carbon emissions. In our case this means money is only advanced when emissions are reduced. It is finance for purpose.”

Austin believes this enhanced standard will become a market expectation for green securitisation, on the basis that “the industry has accepted that it needs to move on from the first phase”.

Like Firstmac’s debut green deal, the new transaction was supported by a mix of Japanese and domestic investors, with the latter covering the – unlabelled – mezzanine component. It takes the nonbank lender’s issuance total to A$3.7 billion over the first half of 2024, which Austin says is a record six month run rate. Firstmac priced a A$2 billion public prime RMBS in February and a A$500 million privately placed prime RMBS in April, the latter deal including a small yen tranche.

Deal volume is being driven by a rejuvenated origination market. After a period of low origination volume and elevated prepayment during the term funding facility era, Austin now reveals Firstmac is writing plenty of volume. “Origination has been improving since July last year – in fact, May 2024 was our record month for mortgage origination and our second highest ever for autos,” he reveals. “Our service and pricing is competitive with banks, while our brokers are confident in the consistency of our offerings.”

But Austin also insists enhanced origination has not come at the expense of credit quality. Firstmac’s arrears rate remains “among the lowest in the market” and significantly below that of major-bank books, he reveals. Further new issuance in H2 is likely, with Austin revealing that he expects Firstmac to remain active in the capital market.