Following the lead of other large lenders, a unit of GE Capital will be entering the B and C loan arena this month.
The mortage funding division, which handles home equity lending for GE Capital Mortgage Services Inc., is starting a program to originate loans to borrowers with subprime credit.
The company is going to keep its strategy flexible and either securitize loans or hold them for investment, according to a report in Home Equity News, a trade newsletter. GE Capital Mortgage will also retain most of the servicing.
GE Capital is joining the ranks of Chase, Chemical, Norwest Mortgage Corp., and GMAC Mortgage - not to mention several smaller lenders. Most have jumped on the A-minus, B, C, and even D bandwagons in the past 24 months.
"Everyone has started to focus their attention (on subprime loans)," said Kevin Duignan, director of residential mortgage services at Fitch Investors Service Inc., New York. "And GE already has presence on the home equity side."
But is the market reaching the saturation point? It's too early to tell. "It's a market that will always be there, regardless of the number of players," said Mr. Duignan. "But there is not necessarily the volume to support all the players looking at it."
Executives at GE Capital are confident that there is room for them. "Some of the players in the market have jumped in from a different basis," said Paul B. Conway Jr., vice president of home equity sales for GE Capital. "But with our customer base, we're confident there is room for us in the market." GE Capital, a subsidiary of General Electric Corp., services over one million customers.
B and C lenders now number in the hundreds as they stretch to supplement conventional mortgage volume.
"There is a drop in origination of quality products," said Mr. Duignan.
GE Capital's decision follows its announcement of weak wholesale lending figures for the first half, when figures dropped to about $800 million. The company also left the retail side of mortgage originations in August. Whether or not GE Capital will be successful at subprime lending may depend on their commitment to servicing, observers said.
"Anyone can get in and start lending, but if you're not good at monitoring, you'll get hurt," said Mr. Duignan.
GE Capital has a reputation for monitoring risk closely and accurately. "They have the potential to do well," Mr. Duignan added.
The company will be concentrating on the "mainstay of the ABC market," Mr. Conway said, in order to minimize risk.
The decision to enter the subprime lending mortgage market was not a hasty one. The company waited until it had a good feel for what the risks are, said Rich Boruta, executive vice president and general manager of mortgage funding for GE Capital.
Smaller players in the mortgage lending market may be the most vulnerable to any fallout from subprime loans. "They just don't have the capital necessary to monitor risk as closely," said Mr. Duignan.