In a move that will undoubtedly rile some competitors, WMC — the subprime lending unit of GE — said late yesterday that it will adopt proposed federal guidelines for subprime lending. The move has gotten the lender some much-needed positive press, too, IMHO, as the Reuters story above attests. Basically, this amounts to qualifying borrowers at the fully-indexed rate.
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.”
This is an interesting move for WMC, on many different levels. For one, there is no guarantee that the current proposed legislation will ever pass — meaning WMC may not be an “early adopter,” but might be the only adopter in terms of the third party market. Two, keep in mind Freddie Mac already stipulated in February it expects any subprime loans it buys to have been underwritten using the same criteria — so WMC’s move may be less motivated by pending legislation than by simple market forces, depending on where WMC’s loans tend to sit (I don’t know how many loans go the agency route, or are expected to under the new underwriting plan at WMC). For lenders that originate significant non-agency business, like Countrywide, the proposed Federal regulations haven’t been exactly embraced:
Lenders including Countrywide Financial Corp. (CFC.N: Quote, Profile, Research), 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.
I suppose, if WMC made these changes in March, we now know perhaps why the company has been slashing its workforce. But I have to wonder: if this was the reason behind the layoffs, which seems at least partly logical, why not spill it to the press earlier?