RAMS Home Loans Group shares fall on US fears

RAMS Home Loans Group shares (ASX:RHG) have taken a hammering over concerns in the US over subprime mortgages. RAMS warned that its cost of obtaining finance from the US markets had risen. RAMS has only recently floated on the stock market and has been the poorest IPO in the Australian market this year.

US banks have been struggling for some months with rising defaults in their subprime mortgage books. While subprime mortgages have helped much more people buy homes than in the past, it has become clear that some borrowers have over-extended themselves and recent rises in interest rates has caused them to default.

Subprime mortgages can include low-documentation loans. Generally, low-doc loans require the customer to pay a higher interest rate due in exchange only having to supply little or no documentation about employment or income. These loans particularly suit the self-employed or those with poor credit.

Sydney-based RAMS lends money to Australian homeowners financed by money they have borrowed from the US. They hold some $6 billion in credit based in the US. With the fallout from the subprime mortgage crisis in the US, it has become more expensive for RAMS to borrow money to finance their loans.

So does this mean anything for other Australian home loan companies? There are a number of non-bank lenders that offer lo-doc loans including Aussie Home Loans, Wizard, Virgin Money and Bluestone. If the credit crunch spreads worldwide from the US, these companies may find themselves having to push up rates.

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Published on August 8-th, 2007 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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