GE Getting Into Subprime Game

GE Consumer Finance recently reported it plans to acquire WMC Finance Co. The transaction is subject to regulatory approval and is expected to close in the third quarter of 2004. Terms of the transaction were not disclosed.

“The U.S. market for consumer finance is $7 trillion and it’s growing, and this acquisition immediately gives us another channel through which we can expand quickly to reach new consumers,” said Mark Begor, president and chief executive officer of GE Consumer Finance-Americas, in a written statement.

While the mortgage industry as a whole is still contracting as a result of the departure from last year’s record low interest rates, the subprime segment is likely to expand. Many loan originators and brokers, left with no refinance business and increased competition for purchase business, will turn to higher maintenance subprime borrowers to make up some of the lost business.

GE’s Connecticut-based finance unit says it has $107.4 billion in assets, and according to spokesman Peter Tosches about $22 billion in mortgage assets and 33,000 employees in 38 countries. It provides credit services and financial products such as private label credit cards, personal loans, auto loans and leases, mortgages and home equity loans.

Nationwide wholesale lender WMC originates loans through more than 10,000 independent distributors who use WMCDirect, its proprietary Internet-based origination system, GE said. The company, which claims their first quarter mortgage production totaled $2.9 billion, employs more than 1,200 people and will continue to be based in Woodland Hills, Calif., with offices in Texas and New York.

“This agreement will allow us to combine WMC’s lending expertise and strong relationships with GE’s growth strategy and superior financial strength,” WMC president and chief operating officer Amy Brandt said in the statement.

Brandt will lead the unit as president and CEO when the transaction is completed, GE reported.

WMC is being acquired from affiliates of Apollo Management L.P., which it has been owned by for the last seven years, according to the report. Apollo’s portfolio reportedly includes companies such as NRT Inc., the owner of Century 21, Coldwell Banker and ERA franchise systems.

GE was previously in the home equity lending business operating through subsidiary General Electric Credit Corp. That unit was purchased by a Philadelphia thrift in the eighties, then by Ford Motor Co.’s credit division, and ultimately became part of CitiFinancial. Some former GECC employees are now top executives at Dallas-based Centex Home Equity Corp.