HomeSide Inc. is entering the subprime market with the help of General Motors' Residential Funding Corp.
HomeSide, based in Jacksonville, Fla., announced in June that it was looking for a strategic partner in the subprime market. But the initiative was pushed to the back burner after National Australia Bank agreed to buy HomeSide in October. That deal is expected to close this month.
Mark F. Johnson, HomeSide's executive vice president in charge of production, said Minneapolis-based Residential Funding, a subsidiary of General Motors Acceptance Corp., was one of six companies considered as a partner.
HomeSide's standing relationship with Residential Funding gave it the edge, he said. HomeSide sells jumbo loans to Residential Funding, which has a conduit that securitizes them.
Nearly all of HomeSide's origination volume comes from its wholesale network of brokers and correspondents. All of these wholesalers will offer Residential Funding's subprime products.
Despite some well-publicized blowups in the specialty lending sector in recent months, Mr. Johnson said, HomeSide's correspondents and brokers have clamored for subprime products to sell.
HomeSide is taking a careful approach to subprime lending. After the loans are originated, they will be sold to Residential Funding, which will assume the credit risk. Mr. Johnson said it was premature to say whether HomeSide would add B and C loans to its servicing portfolio. HomeSide is one of the top servicers with about $100 billion of loans in its portfolio.
"Subprime is a different animal. We have a lot to learn about that side of the business," Mr. Johnson said.
Don Russell, a Residential Funding managing director, said it will help train HomeSide's employees. "Everything we have at our disposal will be shared with them," he said. "Our goal is to increase the amount of production they can do."
HomeSide does not have a retail system, but it does have a telemarketing division that originates loans. Mr. Johnson said that division will not offer subprime loans.
Mr. Russell said Residential Funding intends to sign up lenders that wish to get into the subprime business.