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Tuesday, Oct 3, 2023

GE Finance Group to Acquire Mortgage Bank WMC

GE Finance Group to Acquire Mortgage Bank WMC By SHELLY GARCIA Senior Reporter GE Consumer Finance has chosen a Woodland Hills company for its first foray into the domestic home mortgage lending business. The unit of General Electric Co. has agreed to acquire WMC Finance Co., a highly successful subprime mortgage lender, in a move expected to help WMC expand its operation well beyond its current size. Terms of the deal, expected to close in the third quarter, were not disclosed. WMC’s management and headquarters offices will remain in its Woodland Hills location, the companies said. Amy Brandt (photo), WMC’s president, will remain in that position, reporting to the president and CEO of GE Consumer Finance for the Americas. “Clearly, from a capitalized point of view, GE is the most valuable company in the world,” said Mark Walter, executive vice president, credit and operations for WMC. “They bring capital and they’re going to allow us to grow much more aggressively on a nationwide basis than we otherwise would be able to.” (Brandt, who was traveling overseas, was not available to comment.) WMC, the sixth largest nonprime wholesale lender in the country, in 2003 originated $8.2 billion in loans. In 2000 the company completely overhauled its business model, shuttering all of its storefronts and investing in cutting edge technology that allows WMC to conduct its loan transactions over the Internet. The highly risky gambit worked. WMC’s loan volume doubled between 2002 and 2003 and the company has recently opened branches in Dallas and New York, creating a national organization with about 1,300 workers. But despite its substantial strides, WMC executives say they needed more resources than the company was able to generate in order to continue to grow. “What we found was that our online, one location strategy worked very well up to a certain point, but our growth began to stagnate,” said Walter. Growth limited While its offices in Dallas and New York helped open those markets, developing them required establishing close ties with mortgage brokers, and that could only be done with more staff and more local offices. “California brokers expectations differ from Chicago and Chicago differs from New York,” said Walter. “So it’s really a matter of getting more of a geographic focus on the markets.” WMC, which specializes in what the industry refers to as “Alt A” lending, targets a market that, in contrast to the subprime market, does not have bad credit, but may have certain credit issues that exclude them from the prime market. These borrowers may have non-traditional income that is difficult to substantiate or they may have high debt ratios, but they are typically otherwise credit worthy. The market is considered riskier for lenders, but it is also much more profitable than the prime lending market. GE, a powerhouse in consumer lending with some $107 billion in assets globally, had been seeking new markets to augment its business, heavily weighted toward credit card and auto loan financing in the U.S. when it made the deal to acquire WMC. “I think GE’s entry into the mortgage business is not entirely unexpected,” said S.A. Ibrahim, a board director for the California Mortgage Bankers Association. “GE is a major player in consumer finance and this has been an area where they had minimal presence.” GE officials said they looked at several different lenders before choosing WMC, which is owned by Apollo Management LP, a very large investment banking firm based in New York. “We chose WMC because of its solid management team, technology and proven record of success,” said Peter L.Tosches, a spokesman for GE Consumer Finance. While the outlook for home mortgage lending has cooled in recent months on expectations that interest rates will rise, the subprime and nonprime markets are not likely to be affected as dramatically as the prime markets. While refinancing activity, which has driven much of the volume in the prime lending markets, is down dramatically, a number of new products and programs are rolling out to service the home buying market. And much of that effort is directed at home buyers who are WMC’s target market. “Subprime and Alt A borrowers are not as rate sensitive to begin with,” said Ibrahim, “and second, as the market becomes more purchase dominated, there are a lot of people out there who want to buy homes who do not fully meet the prime criteria.” Debt to double The industry projects that the amount of household debt will nearly double by the end of the decade to about $12 trillion, and much of that increase will be driven by new home buyers who have had limited access to loans until now. Public policy has recently been directed at efforts to reduce the gap between white home owners and those of belonging to other ethnic groups, whose rates of ownership are far lower. And companies like Fannie Mae and Freddie Mac are rolling out programs targeted specifically to these borrowers as well as other first time buyers who simply have difficulty meeting down payment requirements. That bodes well for a company like WMC. “New products, particularly on the Alt A and subprime side, are more inclusive of different borrowers and everyone is looking at the Alt A sector to disproportionately benefit,” Ibrahim said. “What GE brings to the table is a lot of muscle and a proven management capability,” said Ibrahim. “But just because they’re GE doesn’t mean they automatically will be successful. They’re going to have to earn their way in.”

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