Maybe this will solve the mysterious sytem ?

http://www.mortgagepackaging.com.au/forum/viewtopic.php?t=18

Posted: Friday 22nd April 2005 10:02:22 am Post subject: How it works…

Derives uses a similar system to banks. If derives lends you 1 million dollars it can use that secured mortgage to borrow on the international money market – the ratio they use is 21:1. Hence if they are going to loan you 1 million they can actually borrow 21 million.

Now, the rules state that you have to pay back 5% of the principal every year. There are a couple of others but this is the main one. In essence they use your mortgage to play the international money market.

Supposedly there is no risk to you if they lose all their money on the money market – not sure why at this point in time. I understand it has something to do with the fact that the loan is independently secured – hmmm, would need more info here.

Money markets can be volatile so it would be interesting to see how the model works to protect the mortgagor if the mortgagee sustains irrecoverable losses on the international money market.

The way it is being pitched is that it is virtually risk free. Again, that remains to be seen. I understand they are likely to drop the residential lending side of things and focus only on commercial.

Look for more from ASIC etc at the end of April apparently.

With a better understanding of the down side the product could indeed have a use but my opinion would be that is more of a niche product than a standardised loan facility. Still, will be interesting to see what our friends at ASIC come back with. “