The trashing of the share price of Rams Home Loans Group last week was an understandable reaction to news on Tuesday, October 2, of the separation of the company - with the franchise and brand sold to Westpac and the residual listed entity left to earn whatever profits it can from a $14 billion loan book. The announcement of the sale to Westpac, followed by market briefings by Westpac and Rams that day, still left most outsiders in the dark over the earnings prospects for the non-bank lender's stock. From now Rams' profits derive solely from management of this residual portfolio, equal to about 1.6 per cent of the Australian mortgage market. To put that in context, that's a home loan book equal to that of all building societies combined, and larger than the loan portfolios of Citibank, Bendigo Bank and Bank of Queensland. The profit of any mortgage loan - once on the books - is a function of the life of the loan, the spread and fees. Let's start with the fees. The key fee to think about is the break fee (known inside banking circles as the "deferred establishment fee"). This is really part of the up-front origination cost incurred but not recovered and deferred until later in the life of the loan. The reason these fees exist is mainly so banks can fib about the notional interest rate, more commonly known as the "comparison rate" - the calculation of which is dictated by law. Lenders keep this advertised rate low by having a hefty fee when someone refinances within five years (by which stage the profit from the interest spread should be worth the trouble the lender has taken). In the case of Rams, these fees are in the order of two per cent. These fees are at the high end of the range, according to data compiled by InfoChoice. The spread Rams might earn from managing its loan book is hard to estimate in the current market. Few investors are willing to buy asset-backed securities of any description in any corner of the global capital market just now, and the size, structure and pricing of Rams' $300 million bond sold to eight investors a few days ago wasn't too encouraging. And while Rams is facing some problems refinancing the $6 billion worth of commercial paper with a February deadline, and several billion more now funded through bank warehouses, it's hard to conclude they are terminally unprofitable. Credit markets will reopen, although slowly, and a market price will emerge for all lenders hoping to make use of the machinery of securitisation. With a portfolio in "run off", the Rams loans will, by definition, become highly seasoned and are likely to improve in quality. The upshot is that, despite the pessimism, Rams management will refinance the loan and while investors today can only guess at the terms, the better hunch is that those terms will leave some profit on the table. Then there's the question of the