GE's WMC Mortgage unit adopts subprime guidelines
NEW YORK (Reuters) - General Electric Co.'s (GE.N) WMC Mortgage Corp. subprime lending unit said on Tuesday it has adopted proposed federal guidelines on low-downpayment home loans that have drawn the ire of some lenders.
Announced in March, the guidelines focus in part on "hybrid" adjustable-rate mortgages, which typically carry low rates for two years and then reset to higher rates. If adopted, they would call on lenders to assess borrowers' ability to repay based on the stepped up monthly payments, rather than on the low initial payments.
Defaults among subprime borrowers, or people with poor or limited credit histories, soared this year as housing prices stagnated, and because many lenders last year weakened their underwriting standards too much. Dozens of subprime lenders have quit the industry.
Mike Ettlemyer, a spokesman for WMC parent GE Money Americas, said Burbank, California-based WMC adopted the guidance in March, and now expects to offer 50 percent fewer subprime hybrid ARMs. He did not estimate how much overall loan volume might decline.
"The criteria change things, and it's going to be a redefined business," he said. "With our early adoption of the guidelines, WMC Mortgage is being proactive in helping address issues facing the industry."
Lenders including Countrywide Financial Corp. CFC.N, the largest U.S. provider of home loans, have criticized the proposed guidelines, saying they cut off credit to people who need it, and punish lenders that have sound underwriting standards.
The guidelines were proposed by the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Office of Thrift Supervision and National Credit Union Administration.
GE Money in April announced plans to lay off 771 employees, or roughly half its staff, on top of some 460 layoffs announced the previous month. Last year, the unit made $32.1 billion of subprime home loans, ranking fifth nationally, according to National Mortgage News.
