GMAC Mortgage Takes Huge Fourth-Quarter Hit
GMAC, the auto and home loan lender owned by Cerberus Capital Management LP and General Motors Corp., reported a fourth-quarter loss at its mortgage unit after setting aside more money to cover risks from subprime loans.
The operating loss at the company’s ResCap mortgage unit was $651 million, compared with profit of $118 million a year earlier, Detroit-based GMAC said in a statement today.
ResCap made $6.9 billion of subprime (bad credit mortgage loans) in the fourth quarter, a 43 percent decline from the same period in 2005.
“Obviously ‘leaning away’ from the nonprime market was not sufficient,” Jim Giertz, ResCap’s CFO, said on a conference call today.
ResCap plans to reduce its bad credit mortgage investments by about $20 billion from the $48 billion it held at the end of last year.
The unit, the 12th-largest home mortgage lender to people with poor or limited credit histories, “has sharply reduced production of nonprime mortgages and has stepped up its loss mitigation efforts as it relates to the company’s existing nonprime mortgage exposure.”
ResCap’s earnings will likely remain under pressure in the near-term, GMAC said. The parent company posted net income of $1 billion, including a one-time tax benefit of $791 million.
ResCap’s earnings will be hurt by lower mortgage volumes and higher credit costs this year, “but it’s not a New Century Mortgage in terms of its risk profile,” said Brian Johnson, an analyst at Lehman Brothers Holdings Inc.
GMAC Mortgage, struggling to reverse more than $13 billion in losses over the last seven quarters through September 30, sold a 51 percent stake in the company for $14.4 billion to an investor group led by private equity firm Cerberus Capital in November.
GMAC said it expects to receive a “common equity injection” of about $1 billion this quarter from GM, after a recalculation of the company’s book value caused by the mortgage loan losses.
Johnson predicted in a report last month that GM would have to rebate about $950 million to GMAC’s buyers. GM is scheduled to report earnings tomorrow.
ResCap increased reserves as delinquencies on subprime loans rose to the highest in four years, according to the Washington- based Mortgage Bankers Association. That increased the risks for Rescap of losses on the home loans and related assets it held as investments or for sales.
SOURCE: Bloomberg Media