Monday, June 18, 2007

GMAC: Still Dumber Than WaMu

by Tanta on 6/18/2007 07:07:00 AM

Mamas, don't let your babies grow up to be marketers who send "test mailings" to reporters:

Just consider the direct-mail solicitation I recently received from GMAC Mortgage. The letter was addressed to me as a "Washington Mutual Customer"- I have a 30-year, fixed-rate mortgage with WaMu - and it began ominously: "You've probably read about it in the newspaper or seen it on the nightly television news. Many mortgage lenders all across the country are heading for financial trouble because they have made too many questionable loans. Some lenders may even go out of business. And what will become of the people who trusted those lenders if that happens?"

Then came the kicker: "Allow us to help you refinance your mortgage with the rate and term that best suits your needs."

GMAC's pitch is absurd on so many levels I barely know where to begin. First off, the letter implies if you have a conforming mortgage, as I do, that you could somehow lose your mortgage should your lender go bankrupt. That's simply untrue. Sure, there could be some servicing glitches should your loan be acquired by another bank, but that's more an annoyance than a genuine financial safety issue.

Even more troubling was the impression GMAC gave of the lender its letter appeared to be targeting, Washington Mutual. WaMu spokeswoman Libby Hutchinson calls the mailing "false and misleading," and she's absolutely right. GMAC - now majority-owned by private equity firm Cerberus Capital, with General Motors retaining a minority stake - touts itself as "a stable and established lender" in its mailing, but its below-investment-grade credit rating is actually several notches below that of WaMu.

To be sure, WaMu's home-loan business is struggling - subprime-related losses contributed to a 20 percent decline in bank profit during the last quarter. However, WaMu's overall exposure to the subprime market pales in comparison to GMAC's own. At the end of last year, subprime comprised 10 percent of WaMu's mortgage portfolio - about $20 billion total. GMAC, meanwhile, reported $48 billion in subprime loans, 76 percent of its total home-loan portfolio.

So what does GMAC have to say for itself? I called the company to ask about the letter, and GMAC spokesman Stephen Dupont sounded genuinely apologetic. The letter was part of "test mailing," Dupont said. "It's not something that we're going to be repeating."

Looks like GMAC needs a new statement-stuffer marketing strategy. Something tells me the Calulated Risk commenters are probably bubbling over with good ideas . . .