GMAC Loses $5bn on Mounting Mortgage Woes
GMAC Financial Services (GOM) posted an expected Q409 net loss of $5bn, as losses related to legacy assets in the company’s mortgage operations continue to mount. The Q409 loss compares to net income of $7.5bn in Q409 and net loss of $747m in Q309. For all of 2009, GMAC reported a net loss of $10.3bn, compared to net income of $1.9bn in 2008. The quarter’s results were impacted in part by $3.3bn in losses related to “strategic mortgage actions,” a $573m mortgage repurchase reserve expense and a $122m mortgage servicing rights (MSR) valuation adjustment. GMAC, which began as an auto financing firm for General Motors, expanded its services to include mortgage lending, but has been hit hard by the downturn of both industries. GMAC received billions in Treasury Department funds to shore up its finances. At the end of 2009, GMAC announced a $3.79bn capital infusion from the Treasury, the conversion of $3bn of existing convertible preferred stock held by the Treasury into GMAC common equity and the exchange of all of the remaining preferred stock Treasury held for $10.13bn of newly issued mandatorily convertible preferred securities (MCP). With the government backing, GMAC said it now has the capital buffer required to meet the worse-than-expected economic scenario under the Federal Reserve's Supervisory Capital Assessment Program (SCAP). It was reported this week that GMAC will lay off more than 500 employees and close three offices in its mortgage and auto finance units located in California, North Carolina and Tennessee. GMAC’s mortgage business, operated through its Residential Capital (ResCap), Ally Bank and ResMor Trust subsidiaries, reported a pre-tax loss of $4bn in Q409, up from the $790m pre-tax loss in Q408. The results were impacted by a $2.6bn loss from the sale of legacy mortgage assets and a $573m mortgage repurchase reserve expense. GMAC also rearranged some of its mortgage assets between its subsidiaries. ResCap received a $2.8bn capital contribution through mortgage loans acquired by GMAC from Ally Bank, GMAC debt forgiveness and cash. GMAC said it expects the move will minimize further effects from the legacy mortgage business. The mortgage operation originated $18.1bn in new loans in Q409, compared to $15.9bn in Q309 and $8.5bn in Q408, primarily prime conforming and government-backed loans. GMAC said at the end of 2009, its initiated 32,000 trial modifications under the Making Home Affordable Modification Program (HAMP) and executed more than 9,800 permanent modifications. Write to Austin Kilgore.