GMAC LLC, helping fill a gap left by the departure of two big banking companies from warehouse lending, said it is taking advantage of record low interest rates to issue more loans through independent mortgage bankers.
About two-thirds of GMAC's mortgages are being originated by correspondent lenders that are financed by warehouse loans, Thomas Marano, the chief executive officer of its Residential Capital LLC unit, said in an interview last week.
The company hired Adam Glassner from Bank of America Corp. to run the warehouse business about three weeks ago, Marano said.
Wells Fargo & Co., the second-biggest U.S. home lender, is opening a warehouse unit, two people familiar with the matter said this month. JPMorgan Chase & Co. and PNC Financial Services Group Inc. quit the business this year.
"What we're able to do is provide funding to the midsize mortgage banks out there to reach more consumers and give them a more competitive price," said Marano, who spent 25 years at Bear Stearns Cos. before joining ResCap in April 2008.
"We're looking to do it in a meaningful way," he said, declining to disclose a dollar amount.
The number of warehouse loan providers has dwindled to fewer than 30 this year, from 115 four years ago, as the credit crisis forced banks to close or scale back, according to the Warehouse Lending Project, a Washington-based nonprofit organization.
After reporting five straight quarterly losses, totaling $7.9 billion, Detroit-based GMAC was bailed out by the U.S. government in December as part of an effort to save General Motors Corp., which remains a minority stakeholder after selling control to Cerberus Capital Management LP. The agreement let GMAC convert to a bank holding company, gain access to the Treasury's rescue program and fund more home loans using bank deposits.
Mortgage lending in the United States picked up in the first quarter as the Federal Reserve started buying securities from Fannie Mae, Freddie Mac and the Government National Mortgage Association. The average fixed rate for a 30-year home loan fell five basis points last week, to 4.82%, staying below 5% for the first time since 1971.
"I don't want to say that everything is fixed and right with the world, but what you're starting to see is the fruits of an organized effort," Marano said.
Though rivals like Bank of America and JPMorgan Chase do most of their mortgage lending from branches, GMAC must use outside bankers since it trimmed 60% of ResCap's staff last year and closed all 200 retail sites.
GMAC is at a disadvantage because its debt rating is below investment grade, imposing higher borrowing costs than banks like Wells and JPMorgan Chase must pay, said Christopher Wolfe, an analyst at Fitch Inc. in New York. GMAC is awaiting permission from regulators to issue debt guaranteed by the Federal Deposit Insurance Corp.
"I'm not sure they're going to make up the same kind of ground as larger competitors," Wolfe said. "What they have to pay versus their larger peers is a pretty sizable disparity."
Most home loans are being originated at GMAC Bank, where deposits are up "dramatically," Marano said. He declined to comment on the future of ResCap, which has reported nine straight quarterly losses. The unit has the origination and servicing operations, he said.
ResCap's near failure last year, caused by a surge in subprime loan defaults, has tarnished the brand and will make it difficult for GMAC to regain bankers' trust, said Glen Corso, the Warehouse Lending Project's head. Mortgage bankers seek customers based on the funding commitments they get and need to know their lenders will be around to deliver the financing, he said.
"They would certainly need to demonstrate to mortgage bankers that they have the necessary financial stability moving forward," he said. "But there's no doubt that the demand is there."
