Posted on April 17th, 2008 in Mr Mortgage's Personal Opinions/Research
Below is my response to the chatter than CMG was potentially imploding. ML-Implode broke the story. There is something here potentially, but in this very rare case I don’t think an implosion. I think GMAC is still sorting out their tangled web of destruction. -Best, Mr Mortgage
In the right hands, the Home Ownership Accelerator, is a tremendous loan program…a borrower actually can pay down their principal balance in much shorter amount of time than with a traditional 30-yr mortgage and the mortgage balance does not grow every month, as with a toxic Pay Option ARM (neg-am). What an idea!! When I was reviewing this loan program in detail last year, the average age of the borrower was 50, the average fico was 750 and average LTV was <70%. CMG only had 2 defaults since they began selling the program 2 1/2 years ago. This program is not for everyone for sure, but the people who actually make more per month than they spend can benefit from the HOA. I am aware that Cerberus wanted to brand this highly innovative loan program as their own for the GMAC/GM corp and push through their retail channel complete with $10s of millions of traditional consumer advertising to back it. They even wanted to release it as part of their corporate retirement package.
If there is an issue, perhaps it is not a CMG issue. This maybe a GMAC/Cerberus challenge. We all know they are stretched thin. CMG quit doing all exotic and alt-a business early last year to focus upon the HOA and Fannie/Freddie business, which are both very low risk. The volume levels CMG has been putting out have been rising every month. Last I heard they were doing well over $150 million per month and if I remember correctly, and maybe they are reaching their caps with what GMAC will fund. There should not be a real ‘funding’ issue because these loans are dry funded and CMG likely receives payment within a couple of days.
Every investor is trying to lighten up on their mortgage exposure, so maybe GMAC tightened their guidelines overnight, did not give CMG any leeway on the delivery of loans currently in the pipeline, and CMG is scrambling to find another investor that will do more ‘expanded’ guidelines for the unfunded loans. This happens quite often. Look how fast WAMU decided to get out of wholesale…if you were a broker without a loan in their shop within two days after the announcement, you were out of luck. Investors do the same to mortgage bankers too. As a mortgage banker when investors pull out, you get little notice if any in this market.
The deteriorating credit market conditions and intense LIBOR volatility and speculation in recent days coupled with this program being based upon LIBOR, may lend credence to something going on at GMAC. As a matter of fact, this program averages 75bps over the 1-month LIBOR, which is a extremely low rate in this credit environment.
I have not heard anything that would lend me to believe that CMG is going down, especially given their conservative nature over the past 12-18 months. This would actually be a shame because I truly believe that the Home Ownership Accelerator is a phenomenal loan program for the right borrowers. If I would have had one on my homes for the past several years, I would likely own them free and clear right now.