TORONTO (Reuters) - A finance subsidiary of General Electric Co plans to wind up its Canadian alternative mortgage business this week as part of a wider corporate shift away from consumer finance, according to a note sent to brokers.
GE Money said that as of the close of business Thursday, it will no longer accept new Canadian mortgage applications but will continue to fund existing commitments.
“This difficult decision to wind down our mortgage business in Canada comes as a result of a lengthy analysis of our global business, as GE and GE Money continue to apply investment capital in areas providing the best potential return for our shareholders,” the company said in a note to brokers this week.
The value of GE Money’s Canadian mortgage business was less than C$1 billion, and it entered the market in 2005.
GE has also been stepping back from the consumer finance business in the United States, and last year shut down its WMC Mortgage subprime lending business.
The company unveiled a restructuring plan last Friday that will see all of GE’s consumer and commercial finance operations -- both the stand-alone GE Money and GE Commercial Finance divisions, plus other industry-specific finance arms in other divisions -- merge into one unit called GE Capital.
Its decision to get out of the Canadian mortgage business comes on the heels of similar withdrawals by other players in the Canadian alternative lending area, leaving fewer options for borrowers with low credit scores or spotty credit histories.
“There were a number of lenders that came into the Canadian residential mortgage market in the last three to five years,” said Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals.
In addition to GE and a couple of others that have recently exited the alternative lending space, “there are some other (conventional) lenders who have withdrawn alternative lending products,” Murphy said.
Alternative mortgages may also include those with 35- or 40-year amortization periods, no down payments and interest-only mortgages -- all of which proved popular with new homebuyers in recent years. The federal government recently said it would not insure some of these mortgage products.
Canada’s biggest banks collectively hold about two-thirds of the all domestic residential mortgages outstanding. At the end of 2007, about C$822 billion in total mortgages was outstanding.
Reporting by Lynne Olver; Editing by Peter Galloway