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WMC Fundings Free Fall
$3.4 billion 1st quarter production
April 16, 2007
By COCO SALAZAR
photo of Coco Salazar
WMC Mortgage has stopped underwriting subprime loans based on what Wall Street wants. But the move has had a pronounced impact on production.
In the first quarter, the nonprime wholesaler originated $3.4 billion — plunging from $9 billion in the fourth quarter, according to a conference call by parent General Electric Friday.
“We curtailed production dramatically during the first quarter,” said Mark Begor, president and chief executive officer of GE Money, Americas, in the call. “We’ve tightened up a lot of our guidelines and really curtailed a lot of the business activities.”
For just March, originations were $0.5 billion, Begor indicated.
He explained that the model to fund subprime and Alt-A loans for brokers and then sell them to Wall Street worked until the fourth quarter, when capital markets stopped buying the mortgages because of home price appreciation declines and increased delinquencies.
The Burbank, Calif.-based company has “fixed” underwriting to its own guidelines and “no longer writing to Wall Street guidelines,” he added. WMC has increased pricing and no longer originates stated income loans and mortgages with loan-to-values greater than 85.
The rate of loans past due 30 days or more at WMC was 5.15 percent, unchanged from the fourth quarter and down from 5.25 percent in the first quarter a year ago, according to call’s corresponding slide presentation. One executive said 60-plus-day delinquency was about 50 percent higher in subprime loans than in Alt-A loans but that the latter loan category is seeing pressures.
WMC showed a net loss of $373 million for the first quarter — $330 million was due to additional reserves put on its balance sheet for the 4.5 billion loans it holds and for potential future repurchases of loans previously sold to investors. On a pretax basis, the increased reserves amounted to $500 million. Currently, it has $700 million in reserves on its balance sheet for protection going forward, Begor said.
“We do feel like we have a fence around the issue with the first quarter reserves,” Begor said.
Among factors helping WMC are that there are less competitors in the market, it has put a time limit of 180 days for the return of loans and is “right-sizing” the organization, the company said in the call.
The nonprime wholesale lender reduced its workforce by 20 percent — or 450 employees — on March 8 and laid off an unspecified number later that month.
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Coco Salazar is an associate editor and staff writer for MortgageDaily.com.
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