Trouble seems to keep finding its way towards Residential Capital, LLC, the mortgage arm of GMAC Financial -- the finance company once controlled by General Motors Corp. reported a massive loss of $1.8 billion for the third quarter amid what it called "global dislocation in the mortgage and credit markets." The consolidated loss comes as ResCap posted a $2.3 billion net loss for the quarter, absorbing a $455 million goodwill impairment charge as GMAC acknowledges that the value of the ResCap operation is taking a hit. "The third quarter financial performance of ResCap is a major disappointment," said GMAC Chief Executive Officer Eric Feldstein. "We are moving aggressively to restructure our real estate finance business as weakness in the housing market and mortgage industry continues to prevail." From the press statement, information suggesting that global mortgage operations are facing pressure from places other than just the United States:
ResCap's business lending operation posted a loss for the third quarter as severely weak conditions in the housing market contributed to an increase in the number of unsold homes and higher cancellation rates for homebuilders. ResCap's international business also experienced a loss in the third quarter as mortgage finance markets in the U.K. and Continental Europe tightened abruptly, leading to higher cost of funds and depressed valuations on the company's portfolio of European assets held for sale ... "We have significantly reduced our exposure to nonprime and non-conforming loans this year, but the company will selectively originate higher-margin non- conforming product as secondary market distribution becomes available," said Feldstein. "Meanwhile, ResCap continues to avail itself of its relationship with GMAC Bank to help support its current mortgage loan production. Accordingly, ResCap remains committed to offering a broad and competitive menu of high quality products to its customers."
GMAC said it expects poor market conditions to "prevail beyond the end of 2007." ResCap in October announced that it was laying off 25 percent of its workforce, or 3,000 employees, in a cost saving move.