Aussie Mortgage Lender Implode-o-Meter

[Kimosabi]

Wow,

Looks like this little International Credit Crunch has spread to our fair shores of the land Down Under.

So, this thread is to keep track of the Aussie Mortgage Industry descent into the Abyss.

My prediction, is that nobody in Australia in Three Months time will be able to get a mortgage without 20% down. I wouldn't be surprised if we go through a stage where nobody can get a mortgage at all.

 

[Kimosabi]

RAMS faces a sub-prime shearing

THE nation's biggest non-bank lender, RAMS, is the latest victim of the global liquidity contagion, unveiling a profit and dividend warning yesterday less than three weeks after an $885 million stock exchange listing.

Addressing a hurriedly convened briefing for investors in Sydney, RAMS founder John Kinghorn said "life was cool" until last Thursday, when the contagion spread rapidly from the US sub-prime market to "all bank and sub-prime borrowers".

"The inter-bank market in London closed down and central banks had to free up the banking system," Mr Kinghorn said, reassuring investors that the RAMS business was "not at risk".

In its recent prospectus, RAMS said it expected to earn a net profit of $43.4 million in 2007, rising to $58.6 million in the current financial year.

The 2008 dividend is a forecast 23.4c. But Mr Kinghorn said he didn't know if the dividend commitment could be met.
"All I can tell you is that what's happening in the market is more likely to be negative than positive," he said.
"I don't know if it will be the same cents per share."

As for the profit figure, he said that if current conditions were to persist, the downgrade was likely to be around 15 per cent.

RAMS, which accounts for 2-2.5 per cent of mortgage lending in Australia, is the second non-bank lender in two days to feel the impact of tightening liquidity due to the sub-prime mortgage crisis in the US.

The Australian yesterday revealed that low-doc lender Bluestone had told borrowers it would lift home lending rates by 17-55 basis points due to higher funding costs.

RAMS' funding model is different to Bluestone's, which largely relies on securitisation.

Of RAMS' $14.2 billion lending book, $6.2 billion is short-to-medium-term funding sourced from so-called extendible commercial paper (XCP) transactions in US debt-capital markets.

RAMS said this XCP market had been experiencing "unprecedented disruptions" in recent weeks, resulting in "material increases in spreads and shortages of liquidity".

"Despite these difficult conditions, RAMS has continued to successfully place its short-term extendible paper, albeit at spreads materially higher than forecast.

"RAMS continues to evaluate its options for existing and future funding arrangements."

Contrary to recent market speculation, and unlike three recent cases in the US, Mr Kinghorn said RAMS had not invoked a funding clause to force its lenders to roll over its short-term paper.

He conceded that the holiday season in Europe had "caused us angst", as RAMS tried to plan its strategy to steer through the crisis.

However, there were encouraging signs of stability, even though it could be "on for young and old again" if unexpected exposures were to emerge, like last week's suspension of some investment funds by France's largest bank, BNP Paribas.

RAMS' other activities are funded by $3.9 billion of warehouse transactions, or interim financing, before potential placement in securitised transactions.

A further $4.1 billion is supported by residential mortgage-backed securities, or longer-term funding deals in the Australian, European and US debt-capital markets.

While it was too early to assess the financial impact of the liquidity contagion, RAMS said it was likely to be "material", and the company pledged to keep the share market informed. Its results will be released on August 28.

Analysts said Australia's banks should be insulated from the problems facing RAMS.

"I would have thought this was, on balance, positive for the banks because if some of their competition is having trouble because they are limited with regard to the sources of funding, then the banks should relatively benefit because they have alternatives," said Wilson HTM's Brett Le Mesurier.

Standard & Poor's analyst Leah Rhodes said RAMS was the only Australian company with a US dollar extendible commercial paper program. She said S&P was closely monitoring the RAMS commercial paper program, which is rated A1+ and stable by the agency.

http://www.news.com.au/business/story/0,23636,22247337-462,00.html

 

[Kimosabi]

Loans crisis could lift interest rates

• Non-bank lenders set to increase rates above RBA
• Big Four banks say will stick to RBA rates
• RAMS shares plunged 20 per cent yesterday

HOMEOWNERS already feeling the squeeze after last week's interest rate rise could face further pain after the current global lending crisis yesterday reached Australian shores.

Aussie Home Loans boss John Symond says he and other lenders could be forced to increase variable loans by as much as 0.25 per cent again in coming months, regardless of moves by the central bank.

Bluestone to increase rates above RBA rate

Non-bank lender Bluestone, which specialises in low-documentation loans, has already said it will have to lift its borrowing rates in addition to last week's official Reserve Bank of Australia increase because of the US subprime mess.

Four of the major banks Commonwealth, Westpac, National and St George all said they had no pressing need to lift rates beyond official RBA adjustments.

Mr Symond's comments came after local mortgage lender RAMS Home Loans Group said the shake-out in global lending markets could have a "material impact" on its profit.

RAMS, which has $14 billion worth of loans, warned of possible problems
due to indirect exposure to the low-doc loan crisis in the US.

The company sources about half of the funding for its loans to Australian households from the US market.

RAMS Home Loan shares nosedive

Shares in RAMS tumbled 20 per cent to $1.41, after it launched on the Australian Stock Exchange less than three weeks ago at $2.50.

"You are going to find housing loan interest rates will creep up regardless of the Reserve Bank," Mr Symond told The Daily Telegraph yesterday.

"This means interest rates are going to go up slightly. It could be anything up to another quarter of a per cent."

He said major home lenders would not move for at least a few months. "But if it is a real credit crunch, the whole market will have to adjust quickly, everybody."

Shares in the big four banks fell slightly yesterday, but all were quick to distance themselves from any exposure to the US problems. Aussie Home Loans and Wizard also said they had no direct exposure.

CBA says 'no impact' expected

Commonwealth Bank spokesman Bryan Fitzgerald said it expected no impact.

"We have a different funding base to RAMS. For example, 45 per cent of our book is funded from retail deposits," he said.

Financial research group Cannex yesterday said only a quarter of all residential home loans in Australia are currently fixed.

"If this trend continues across other non-bank lenders there may be a possibility of an increase in variable rate mortgages even if there is no rate rise," a spokesman said.

"With the recent interest rate rise and the issue of mortgage funding, the message for consumers would be that if they don't want to worry about rates then a fixed rate could be an option."

http://www.news.com.au/business/story/0,23636,22247869-462,00.html

 

[numbercruncher]

The day of reckoning is drawing near, its been atleast a decade since we heard the saying ......



Cash Is King

 

[somesortoftrader]

With RAMS, they do state that all of their "book" is insured. So I guess from that perspective they are 'safe'.

However I think that they are vulnerable because their business model is quite one dimmensionable....(ie Home loans) does anyone else agree, or am I off the track?

 

[Kimosabi]

With RAMS, they do state that all of their "book" is insured. So I guess from that perspective they are 'safe'.

However I think that they are vulnerable because their business model is quite one dimmensionable....(ie Home loans) does anyone else agree, or am I off the track?

I'm not convinced, many a Mortgage Insurance Underwriter is going to go bust as result of this little debacle

What good is having insurance, if your insurer goes bust...

 

[Atomic5]

The day of reckoning is drawing near, its been atleast a decade since we heard the saying ......



Cash Is King

actually I heard it last year around Juy when the stock market was tanking because the USA was having inflation problems, and 2-3 months later, there's a giant deluge of money back into the stock market - no great depression, no end of the world as we knew it ... etc

Wonder what the USA will come up with next year to crash the market, if there's still a market next time 'round? We should find out this week if the Fed cuts interest rates and if the bandage will hold until next summer at least.

I cant see this ending in anything but global war this time though

wot a drama queen -

MHO - DYOR

flame me, i dont care

 

[numbercruncher]

Oh i have no need to flame people Atomic ......

I like others are glad i dumped a month ago ....

This is bigger than an Inflation thing ....


.....


Good luck all ....

 

[Lucky]

The day of reckoning is drawing near, its been atleast a decade since we heard the saying ......



Cash Is King

May well be the case, but where will it be safe?

 

[-merry]

How is it that the effects of the subprime mortgage problem in the US is flowing into the resource sectors... Aren't most of our resources being exported to China? I would have thought that main sectors that would be affected would be the financial sector and possible retail as consumers have less disposable income.

 

[Uncle Festivus]

......as consumers have less disposable income.

....to buy goods from China.....to buy resources from Aus

 

[numbercruncher]

....to buy goods from China.....to buy resources from Aus

.... to spend on over Inflated asset bubbles ....

 

[dhukka]

How is it that the effects of the subprime mortgage problem in the US is flowing into the resource sectors... Aren't most of our resources being exported to China? I would have thought that main sectors that would be affected would be the financial sector and possible retail as consumers have less disposable income.

Merry,

When markets start selling off in a big way the most volatile stocks will usually get hit the hardest. Resources stocks have been historically and as you can see from today's action still are the most volatile stocks in the market. For good reason, since their earnings depend on commodity prices,which as we know can be extremely volatile.

Yes we've all heard about the tremendous demand for commodities from China and BRIC, however if the credit crunch continues to deepen, as I suspect it will, rest assured China and other BRIC nations will be affected with knock on effects to Australian miners.

 

[Mousie]

May well be the case, but where will it be safe?

GOLD