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Motoring into the market

GMAC Residential Funding executive chairman Stephen Knight says the time is right for the company to adopt a higher profile.

Having taken over Knight&#39s own mortgage design and distribution company Private Label in 1998, GMAC has been content to take a back seat.

But Knight believes that GMAC will have to take a more prominent role for the lender to grow in the increasingly competitive mortgage market.

He is overseeing a rebranding of GMAC which he hopes will elevate the company&#39s status to rank with that of parent General Motors.

The US giant&#39s name appears on the new logo and literature of GMAC and Knight hopes some of GM&#39s brand strength will rub off on the company.

He says: “GMAC&#39s corporate pedigree is something substantial and something we are very proud of but I do not think it stood for what we wanted it to. The new brand does. GM stands for strength, size and honour and all our research tells us that customers prefer to deal with an organisation of substance.”

Knight also points to the fact that GMAC sells its mortgage portfolios to banks and building societies, and to capital market investors through securitisation.

He says: “The brand will give institutional investors the comfort of knowing GMAC has a huge corporation behind them should something go wrong.”

GMAC&#39s rebranding has been timed to coincide with the company&#39s first foray into the traditional lending market with the launch of four mainstream mortgages.

Until now, GMAC has only been a recognised lender in the non-conforming sector, but Knight says the company must diversify at a time when many of the big lenders are looking to the sub-prime market to generate higher profits.

He believes traditional lenders may be making a mistake to enter the adverse-credit market when the huge profits associated with the sector may start to dry up.

He says: “I would say it is the wrong end of the margin cycle to do it. My instincts are to be very wary of any market that other people just decided to pile into.”

Knight predicts that within three or four years, mortgage rates in sub-prime lending will have dropped to around 2 per cent above base rate, with mainstream products at 1 per cent over base.

He believes lenders will have to do more and more business to survive this squeeze on margins.

Knight says: “If margins are skinny in three years time, the only way to make a successful business is to deal with large volumes. We have got to set about building the infrastructure and market presence that will enable us to be a £5bn player in three years.”

Last year, GMAC processed around £1.8bn worth of mortgage business. Knight knows he has his work cut out to treble that amount of business in three years but is confident it is achievable with the right strategy.

He says: “Our goal is to have products in every viable mortgage sector. We have to become lender of first choice, we have to be extremely competitive and market leading in all our products and we have got to start doing it now.”

As part of the drive into all loan sectors, GMAC aims eventually to offer 12 mainstream mortgages in addition to its range of sub-prime and non-conforming products.

GMAC also plans to design bespoke adverse-credit mortgages for mainstream lenders, which GMAC agrees to buy as soon as the loan is completed.

After three years, if the borrower has kept to the loan payments, the mortgage can be transferred to a mainstream product.

Knight considers this a good deal for borrowers but sees the real benefits as for toe-dipping traditional lenders. He says: “I think for mainstream lenders this is the best way to test the non-conforming mortgage market.”

But although GMAC provides this service for cautious lenders, Knight can see the day when lenders cease to be categorised into sub-sections of the mortgage market.

He says: “Lenders will not be pigeonholed much longer as either a non-conforming or mainstream lender. Most will just be described as lenders as more and more do what we are doing and enter all mortgage sectors.”

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