From today Melbourne Age:RAMS warning as borrowers battle to...

From today Melbourne Age:



RAMS warning as borrowers battle to refinance

Jacob Saulwick
November 5, 2007
Advertisement

MORTGAGE brokers are warning of a rush to the exits from RAMS Home Loans, with borrowers desperate to refinance loans made with the troubled non-bank lender.

RAMS, the highest profile local victim of the petrification of the US debt market, has sold its brand and franchise operations to Westpac in the wake of a tumbling share price and continued uncertainty about its business model. But the lender has retained ownership of its loan book, which, brokers say, is rapidly deteriorating in value.

"At the moment there's an absolutely dramatic over-representation of RAMS people that are refinancing," Roger Ward, from Ward Finance & Advice, said.

"Not only are they looking around but we are doing the refinancing. At least 20-30 per cent of the refinances that I've done in the last month have all been RAMS, which is way out of kilter with their market penetration."

Brokers say that RAMS customers are looking to exit the lender in part because of the unwanted attention drawn to the RAMS brand, and in part because it has ratcheted up mortgage rates to uncompetitive levels.

Last week, RAMS raised its three-year fixed loan rate by a quarter of a percentage point to 8.39 per cent, which puts it near the top of the market.

And RAMS has already lifted its variable home loan rate on low-doc products by 0.3 per cent.

Mr Ward said while RAMS was offering low-doc rates around 8.4 per cent, borrowers could easily access low-doc lending at below 8 per cent.

A Five Dock mortgage broker, Yordan Kirov, estimated that 15-20 per cent of RAMS customers were refinancing. And he said more would also like to refinance but were prevented from doing so because their property values had fallen.

Many non-bank lenders have had to raise mortgage rates because of higher funding costs caused by the breakdown in confidence in US debt markets where they draw funding from.

While some of them, such as Bluestone Mortgages, have lifted rates several times, larger banks have been able to absorb the higher funding costs due to their ability to access the pool of money generated by customer bank deposits.

Dennis Mrljak, of Smartline in Parramatta, said customers were saying they wanted to borrow from a major bank. "Many of them are baulking when you even mention some of the smaller non-bank lenders."

He said while he had only organised refinancing from one RAMS borrower, he had had calls from several more. "It is perhaps the hysteria and the falling share price that people see," he said. "But other (RAMS borrowers) have definitely received letters that their rates were going up."

A loss of confidence in RAMS raises questions about what value Westpac can draw from its aquisition. It also comes amid questions about how deeply the major banks will be able to claw back market share from non-bank lenders, and whether borrowers will shift to fixed mortgages in an era of rising interest rates.

St George Bank pointed out last week there was evidence of customers choosing five-year fixed mortgages against three-year fixed rates.

Mr Ward said a lot of "flight to safety" business was flowing to Commonwealth Bank and St George.

The Reserve Bank board is widely tipped to lift interest rates by a quarter of a percentage point when it meets tomorrow.

This story was found at: http://www.theage.com.au/articles/2007/11/04/1194117878651.html