Losses Mount at Troubled ResCap
(Update 1: removed inaccurate calculation of loss per minute) GMAC Financial Services residential mortgage unit Residential Capital LLC lost $1.86 billion during the second quarter, according to a preliminary earnings report released Thursday morning -- a huge loss for one of the more troubled large lenders and servicers in the industry. The second quarter loss more than doubled the $859 million loss recorded one one quarter earlier, underscoring just how bad things have gotten at ResCap as the mortgage crisis has rolled onward. Let's put that in perspective, since it's done so rarely in the financial press: the Q2 loss means that ResCap lost roughly $20.7 million per day in the second quarter. The woes at ResCap were compounded by a slowdown in automotive financing, as well, that led GMAC to a $2.5 billion loss in the second quarter. But the health, or lack of it, at the company's mortgage unit is clearly the catalyst for the company's direction. ResCap's losses were due in part to sizeable asset sales during the quarter as the company looked to de-risk its balance sheet -- financial-speak for jettisoning money-losing assets. The company lost $1.1 billion on the sale of its mortgage loans, with $882 million of that total coming from sales outside the United States. Citing "lliquidity in the global capital markets and the continued weakening of consumer credit in key markets," ResCap said it had suspended most mortgage production outside of the U.S. -- which, not surprisingly, helped push international origination volume to record lows during the quarter. In the U.S., GMAC said its residential finance business "is beginning to stabilize," with total prime conforming loan production falling to $12.2 billion during the quarter, compared to $12.7 billion one year earlier; ResCap originated $15.4 billion in prime conforming mortgages during the first quarter. The company pointed to increased production of government loans, including FHA endorsements, during Q2 -- ResCap originated $3.8 billion in such loans during the quarter, compared to $800 million in Q2 last year and $2 billion one quarter earlier. On June 4, facing possible bankruptcy, GMAC and ResCap completed a massive $60 billion refinancing package that saved the lender from the brink of disaster. Among the deals involved, GMAC said it had agreed to provide a $3.5 billion two-year credit facility to ResCap, which includes $750 million of first loss protection from General Motors Corp. (GM) and majority investor Cerberus Capital Management, L.P. Read the full story on the deal here. In the wake of the deal, however, questions surfaced whether the financing deal would be enough, with Moody's cutting GMAC's credit rating below junk status nonetheless. Looking at non-performing assets, it's not hard to see why sentiment remains decidedly negative. Non-performing loans at ResCap totaled $6.3 billion at quarter's end, or 14.13 percent of assets; non-performing assets (which includes loans, plus things like REO, etc.) stood at a whopping $7.4 billion. Against that sort of NPA total, ResCap provisioned $464 million into reserves, bringing its allowance for future losses to just $1.12 billion net of charge-offs. When reserves are just 15 percent of NPAs, it's not hard to figure out what needs to come next: capital, and lots of it. Disclosure: The author held no positions in GM when this story was published; other indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.