Grim Financial Picture at GMAC Mortgage Company

GMAC LLC, said losses at its Residential Capital (ResCap) home mortgage loan division, which lends to borrowers with weak credit, will hurt its profits this year as defaults and foreclosure rates surge.

The GMAC mortgage unit said it’s “sharply” cutting non-prime mortgage loan lending and is actively expanding efforts to cut losses from bad loans.

The mortgage unit’s “fundamental earnings potential” remains “solid” in the long run and consolidation in the industry should help the unit grow, said GMAC.

Late payments on U.S. subprime home loans reached a four-year high of 13.3 percent, the Mortgage Bankers Association said, and foreclosures on all home mortgages rose to a record.

At least 30 home loan lenders have gone bankrupt, shut down operations, or sought buyers since the start of last year, according to Bloomberg data.

ResCap is the seventh-largest originator and servicer of U.S. residential mortgages and ranked as the 12th-largest U.S. subprime home loan lender. It operates under brands including GMAC Mortgage and Ditech.

ResCap’s operating earnings fell to $182 million last year from $1 billion in 2005, according to the presentation. The unit has enough cash and equity to meet all its debt obligations, it said.

ResCap had $2 billion cash and $7.6 billion equity at the end of last year, according to officials. There were no figures on the unit’s obligations.

GMAC announced the resignation of ResCap’s CFO, James Giertz, on March 23. Three days earlier, treasurer Louise Herrle said she planned to leave in April. The mortgage lender attributed the resignations to personal reasons.

Yield premiums on ResCap bonds have increased since the beginning of the year on concerns about defaults from subprime [bad credit home loans].

The ResCap unit posted a fourth-quarter operating loss of $651 million, compared with profit of $118 million a year earlier, GMAC said. ResCap issued $6.9 billion of non-prime rate loans in the fourth quarter, a 43 percent decline from 2005.

Subprime loans, a term applied to some of the riskiest mortgage products, are usually made to borrowers with poor credit ratings or high debt burdens.

SOURCE: Bloomberg Media