GMAC-RFC launches analysis of non-conforming market

Amanda Jarvis

November 19, 2004

Independent research, sponsored by GMAC-RFC, reveals rehabilitative nature of non-conforming mortgages
* Non-conforming borrowers’ quality of life and credit ratings improve through home ownership
* Stereotypical profile of a non-conforming borrower disproved
* Significant role for non-conforming mortgages in UK housing market

The report includes key independent analysis by Professor Kevin Keasey, Director of the International Institute of Banking and Financial Services, Leeds University Business School. The report explodes myths about the typical non-conforming borrower and also demonstrates the rehabilitative effect obtaining a mortgage has on borrowers.

The rehabilitation of non-conforming borrowers

As the 12th largest lender and number one non-conforming lender in the UK, GMAC-RFC sponsored this independent research to gain a better understanding of the market and provide policy makers with market-led intelligence on this growing and important sector. One of the key findings of the research was the rehabilitative nature of mortgages on non-conforming borrowers.

Key findings included:

* One in three (30%) agreed that their credit rating has improved since they took out their last mortgage.
* Nearly half (42%) of non-conforming borrowers believe that their quality of life would be worse if they had been unable to buy their property.
* If the non conforming borrowers questioned had been unable to secure a mortgage, a quarter (27%) would have had to continue renting and a fifth (19%) would have had to move in with family or friends.
* Half (51%) believe that non-conforming mortgages provide the opportunity to improve credit ratings over time.
* Over half (57%) are perfectly willing to pay an extra 1% to 2% above the standard mortgage rates to secure a mortgage showing that they can clearly see the advantages securing this mortgage brings.

Professor Kevin Keasey, Director of the International Institute of Banking and Financial Services (IIBFS), Leeds University Business School, commented: “Our analysis concludes that non-conforming mortgages have a significant and important role to play in the UK housing market. It is clear that the response of some lenders, to simply exclude potential borrowers who do not fit a strict criteria, can have a negative affect, particularly considering the perceived importance of owning a home in the UK. The positive response is to assess individual situations and price mortgages accordingly.”

Understanding non-conforming borrowers

The findings also disprove the stereotypical image of a non-conforming borrower. They are actually far more financially literate than they are often portrayed.

Key findings included:

* All types of borrowers are involved in the non-conforming market. The mean income of the non-conforming group is higher than the UK national average.
* Two thirds (67%) fully understand why lenders charge higher rates to borrowers with poor credit histories.
* Property values of non-conforming borrowers are only marginally lower than the national average (£138,00 as opposed to £162,000).
* More than one in ten (15%) of non-conforming borrowers are in the higher social classes A & B and there is no heavy bias towards unskilled employment.

Stephen Knight, Executive Chairman of GMAC-RFC, commented: “As one of the world’s largest financial services institutions, we try to contribute to the public policy debate in each of the countries where we have a presence. The above research, which we understand to be the most significant ever conducted into the attitude and awareness of non-conforming borrowers, will hopefully inform the debate in the UK about this important and growing sector of the market amongst lenders, regulators and commentators.”

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