CBA would also pass on a 100 basis point cut to interest rates to those Wizard home loans to be included in the new CBA-funded portfolio, the bank said in a statement on Tuesday.
CBA said the 16,000 Wizard customers affected by the acquisition would pay 5.84 per cent on their variable home mortgage rate from March 9.
However, GE Money spokesman Tristan Everett said customers were already paying 6.26 per cent and the standard variable rate for a Wizard home loan should drop to 5.26 per cent.
Australia’s largest home lender shunned the remaining $9.25 billion Wizard portfolio that includes around 60,000 accounts comprising low-documentation loans and mortgages with high loan to valuation ratios (LVRs) and currently has a default rate of around three per cent.
This default rate is about 2.5 times higher than the default rate on the loan book of the average bank.
GE Money’s Wizard Home Loans subsidiary was sold to John Symond’s Aussie Home Loans and CBA – a 33 per cent shareholder in Aussie – on Christmas Eve.
The sale followed seven months of talks with a number of parties and will be completed on February 27, with Aussie taking the GE Money-owned Wizard brand and franchise network for an undisclosed amount.
CBA retail product chief Michael Cant said the bank reviewed the Wizard loan book in detail after striking an acquisition deal with GE and Aussie on December 24 but decided against buying another $1.75 billion initially canvassed with GE Money.
“We weren’t seeing dramatic signs of credit problems in the portfolio but at the same time we applied a very strict criteria before we accepted it,” Mr Cant told AAP.
CBA has excluded low-documentation loans and fixed rate loans, and taken loans with LVRs of less than 90 per cent, have no past arrears, and that are 100 per cent mortgage insured, he said.
CBA sweetened the deal for Wizard borrowers being transferred to Aussie by passing on the Reserve Bank of Australia’s (RBA) one percentage point interest rate cut.
GE is hoping CBA may pick up more loans from the Wizard portfolio as the local subsidiary of General Electric moves to exit the mortgage market.
“We’re hoping that the DAF (deferred administration fee) waiver window that we’ve introduced on March 1 will go some way to allowing people to make that choice,” Mr Everett said.
“But they (CBA) said up to $4 billion at the start, so there may be ongoing discussions after that.
“The door is open.”
Under the deal with CBA and Aussie, GE Money last week said it would waive the deferred administration fee – the exit fee – for 12 months for those home loan borrowers wishing to refinance their home loans though Aussie.
The fee waiver came as GE said high wholesale funding costs in the US prevented it from passing on the RBA’s recent cuts.
Resi Mortgage Corporation’s head of consumer advocacy Lisa Montgomery says she is encouraging Wizard borrowers to look at other options.
“There should be a choice based on all aspects of the loans, not just interest rates,” she said.
She said the average standard variable rate for the big four banks is 5.82 per cent.