Nab In $1bn Loans Deal

The Age

Saturday February 9, 2008

Marc Moncrief, Banking Reporter

THE mortgage lender formerly known as RAMS will be able to make money again now that it has repaid the debt that caused it to go nearly bust earlier last year.

RHG, the company that was created from what remained of RAMS after it could not repay its debt and was forced to sell its distribution network to Westpac, said it would repay the last of its debt on the "extendable commercial paper market" in New York overnight.

The payment was capped by the sale of loans worth $1 billion to National Australia Bank.

RHG said that following the transactions, subsidiaries of RHG would be entitled to receive fee income and "excess spread" on about $13.2 billion of mortgages.

The lender said it might receive fees on the loans it sold to NAB "to the extent that RHG is asked to manage and service" the loans.

In a statement yesterday confirming the purchase, NAB repeatedly stressed the quality of the loans.

"The residential mortgages are prime, seasoned Australian mortgages acquired without any payment related to origination costs," NAB said.

"The investment meets all of NAB's normal capital, credit and return criteria."

NAB said it would not be required to pay brokers' commissions trailing from the loans and that the performance of the loans was "consistent with the National Australia Bank's existing mortgage portfolio".

All the loans are mortgage insured.

RHG said the money would go to pay down the "extendable commercial paper" debt that caused the lender's problems in the first place.

By today, RHG will have repaid all its extendable commercial paper debt - originally estimated at $6 billion.

An RHG spokesman said the book had shrunk in recent months through "natural attrition" to about $5.5 billion over two facilities: a $3 billion facility that had already been repaid and a $2.5 billion facility that was due to be paid last night during New York trading hours.

To pay the loans, RHG was using the $1 billion from NAB, $3.5 billion in "warehousing facilities" (money borrowed to bridge the time between a loan being given and a loan being sold as securities on credit markets) and the sale of $750 million in privately placed bonds.

It is believed the remainder will be paid from the $1.5 billion Westpac promised to provide as part of its acquisition of the RAMS broker network.

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© 2008 The Age

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