ResCap to Cut 60 Percent of Workforce
Troubled lender Residential Capital LLC said Wednesday that it will close all 200 of its GMAC Mortgage retail offices and cease originations through the Homecomings wholesale broker channel; only the company's small correspondent and direct lending channels will remain, according to a press statement. The decision to exit wholesale and retail lending will cost 5,000 employees thei jobs, or 60 percent of the company's workforce. Approximately 3,000 employees will receive notification this month with the majority of the remaining 2,000 reductions expected to occur by year-end, ResCap officials said. "While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment," said ResCap chairman and CEO Tom Marano. "Conditions in the mortgage and credit markets have not abated and, therefore, we need to respond aggressively by further reducing both operating costs and business risk." ResCap will incur a charge expected to range from $90 to $120 million during Q3 that reflects the 3,000 workforce reductions and related operational streamlining initiatives; potential charges related to the remaining 2,000 workforce reductions have not yet been determined. The company has been struggling to deal with mounting losses, and reported a net loss of $1.86 billion for the second quarter at the end of July; the loss came after a massive $60 billion refinancing package saved it from likely bankruptcy. Recently, ResCap officials announced their intention to provide third-party servicing tailored to distressed mortgage investors, setting their sights on entering the so-called "high-touch" servicing segment via the company's Mortgage Special Operations platform. On August 11, GMAC announced that it had brought on John Vella, former chief executive officer at EMC Mortgage, to lead the effort in this area. ResCap has also been very aggressive on litigating repurchases claims for both its residential and commercial mortgage business, according to a review of active case dockets by HousingWire. See complete story. ResCap said it will provide severance and outplacement assistance for employees affected by today's move. For whatever it's worth, something tells us majority investor Cerberus Capital Management, L.P. didn't expect to be buying what is now set to become essentially a large servicing shop when it bought the mortgage platform out from under General Motors (GM). Disclosure: The author held no positions in GM when this story was published; indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.