The federal government’s $4 billion financial package for second tier banks and other mortgage providers will boost competition in the mortgage market, Treasurer Wayne Swan says.

Through the government’s asset manager — the Australian Office of Financial Management (AOFM) — smaller banks and mortgage providers will be able to tender their mortgage-backed securities, rather than wait for struggling financial markets to return to normal.

Swan today said treasury officials would start consultations with the lending industry on Monday morning to get the package running as quickly as possible.

“This is an important measure to introduce competition in the mortgage market,” Swan told reporters in Brisbane.

He said Australia’s four major banks were in a good financial position to ride out the global financial market meltdown.

However, he said the second-tier or smaller banks and other mortgage providers were experiencing difficulty obtaining funding in global markets to provide mortgages due to the financial crisis.

Swan said the government would not allow the funds to be used for low-documentation loans, which had been the subject of a sharp increase in mortgage defaults in areas like western Sydney. “This money won’t be made available for low doc loans.

“This money will be invested in AAA-rated residential mortgage-backed securities.