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Mortgage Implode-O-Meter reports that General Electric (GE) will divest the WMC Mortgage unit to a yet-to-be-found buyer of the business unit.
“The mortgage industry has greatly changed since the purchase of WMC,” Laurent Bossard, chief executive officer of the division, said in an e-mail to employees yesterday. “The current subprime market environment has made a significant negative impact on the business.”
GE’s decision to divest WMC comes as more than 60 mortgage companies have halted operations, gone bankrupt or sought buyers since the start of 2006, according to Bloomberg data. The contraction in the subprime industry caused the near- collapse last month of two hedge funds run by Bear Stearns Cos. and the downgrading of almost $12 billion of mortgage securities by ratings companies.
Burbank, California-based WMC this year slashed its workforce by more than half and added $330 million to reserves in the first quarter, GE said in April. General Electric may report a $150 million loss at WMC when it releases second- quarter results today, Jeffrey Sprague, an analyst at Citigroup Inc., said in a July 10 note to clients.
WMC Mortgage, which was purchased a short 3 years ago by the conglomerate, was a darling of the housing and refinance boom during the early 2000’s by offering subprime mortgages up to 100% on low, teaser-rate ARMs. WMC Mortgage was known in the industry for providing aggressive yield spread premium “buy ups” which allowed correspondent lenders and brokers to earn more yield spread premium or “rebate “with smaller increases to the rate of the mortgage.
As a former WMC account I can tell you that over the last year WMC had really tightened its lending standards under GE. A once easy-approval mortgage company became much more stringent on guidelines, rates were uncompetitive compared to the New Century’s of the world, and programs began to disappear.
GE is smart to divest of WMC - if they can find a buyer.
