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The GMAC-RFC dilemma: to tighten or not to tighten

I am considering taking bets on how many times I will be writing my blog on the current liquidity crisis following the continued fallout from the US sub-prime crash.

So far it has been four weeks running and I am sure there are a few more weeks of sub-prime focus to come.

This week has seen even more attention focus on GMAC-RFC after it sent an email to its packaging partners stating that it would be reducing its maximum loan to value to 75 per cent.

The fact that it was only just last week that it announced it would be reducing its LTV to 90 per cent from 95 per cent shows how volatile the markets remain and how lenders are watching the situation on a daily basis.

But GMAC confirmed yesterday that after a review meeting it had decided it would not be changing its lending criteria for the time being and would also not be increasing rates again, for now.

The GMAC move – if it had gone ahead and who knows it still could – would pose an interesting question in the mortgage industry. To reduce LTV to 75 per cent would be a huge step for a top ten lender such as GMAC. It would have undoubtedly seen several other non-conforming lenders follow its move as we have seen in the market so far with other players, such as Mortgages plc and Platform, reducing their LTVs over the last few days to 90 per cent from 95 per cent.

Moving rates upward is one thing for lenders but significant lending criteria changes is a whole different ball game. Any lender in the market – if it was a securitisation-based lender or a balance-sheet lender – would not want to be exposed to too much share of the non-conforming market if a major lender like GMAC closed its doors to business over 75 per cent. If GMAC does decide to go ahead with the changes in the near future then the mortgage landscape could be changed quite substantially.

But let us not forget the packaging market and brokers at the moment. Non-conforming deals are probably not the easiest cases to source but with all the rate increases and criteria changes at the moment, it must be even harder to find the best, or even a suitable deal.

Sorry about the rather doom-laden tone but there seems little else to talk about at the moment which is as important as this. The storm will of course pass but it could be a good few months yet.

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