ResCap incurred a loss of $254 million during the quarter, sharply better than a loss of $910 million in the first quarter. A year ago, the unit posted a profit of $548 million, buoyed by a $259 million gain on an equity investment sale. Amid a slower housing market, an increased number of defaults on high-risk or subprime loans have hurt ResCap, traditionally thought of as the jewel of the GMAC portfolio. At the end of the second quarter, ResCap's U.S. nonprime held-for-sale portfolio was reduced to $1.9 billion from $3.1 billion at March month-end and from $5.4 billion at year-end 2006. The nonprime component of ResCap's U.S. held-for-investment portfolio declined by $3.1 billion in the second quarter. Nonprime exposure in warehouse lending was reduced to $331 million, down from about $1 billion at March month-end. ResCap also significantly curtailed its nonprime loan origination activities with second quarter production of about $700 million, down from $3.3 billion in the prior quarter. At the same time, U.S. prime loan production in the second quarter amounted to $26.5 billion, just shy of the prior quarter's volume, while its U.S. servicing portfolio increased marginally during the period to $425 billion.It's pretty simple math: don't originate as many subprime loans, reduce the subprime loans you do hold on your books, reduce your warehouse credit exposure to subprime, and the financial fallout becomes much less painful -- at least in terms of absolute dollars. Update: Answering inevitable questions about ResCap's liquidity, GMAC CFO Sanjiv Khattri said the company believes its mortgage operation has "sufficient" liquidity to continue operations.
GMAC's Earnings Hit By ResCap Woes, But Signs of Improvement Seen
GMAC Financial Services released second-quarter earnings today, reporting a 63 percent drop in profit due largely to continuing woes at its Residential Capital LLC unit. The company reported quarterly earnings of $293 million, compared with earnings of $787 million a year earlier. In spite of the continued housing pinch, it's clear that ResCap has righted the ship somewhat: