GMAC has $2.52 billion loss; ResCap unit may fail

By Jonathan Stempel

NEW YORK (Reuters) - Finance company GMAC LLC lost $2.52 billion in the third quarter, hurt by slumps in the housing and auto markets, and said its Residential Capital LLC mortgage unit may fail.

GMAC has been in the red for five straight quarters, losing $7.9 billion over that time. ResCap lost $1.91 billion in the third quarter, and has lost $9.1 billion in eight straight quarterly losses.

Despite halting many risky loans and cutting 10,000 jobs over two years, ResCap is struggling to maintain sufficient capital and liquidity. GMAC excused $197 million of its obligations in the third quarter, and more in October.

"Absent economic support from GMAC, substantial doubt exists regarding ResCap's ability to continue as a going concern," GMAC said.

Private equity firm Cerberus Capital Management LP CBS.UL owns 51 percent of Detroit-based GMAC, and the automaker General Motors Corp (GM.N) owns 49 percent.

"If GMAC can't provide support that ResCap needs, then bankruptcy is an option for ResCap," said Christopher Wolfe, an analyst at Fitch Ratings. "GMAC is running out of options. There is a limit to how much support GMAC can provide, and we don't believe it can provide the support it has historically."

The fates of ResCap and GMAC also depend on a potential merger of GM with Chrysler LLC, also controlled by Cerberus.

GMAC has said it may convert to a bank holding company, letting it tap the U.S. Treasury Department's $700 billion bailout fund, and may refinance much of its debt. It completed a $60 billion restructuring in June.

The company has been the primary lender to GM customers but has curbed loans to borrowers who do not have good credit. Its auto finance unit lost $294 million in the quarter, hurt by higher North American and Latin American credit losses, while insurance operations earned $97 million.

GMAC's third-quarter revenue fell 24 percent to $1.72 billion. Its year-earlier loss was $1.6 billion.

ResCap was the seventh-largest U.S. mortgage lender from January to June, the newsletter Inside Mortgage Finance said.

But loan production fell 59 percent in the third quarter to $11.9 billion after ResCap curbed riskier U.S. loans and halted non-U.S. mortgage lending apart from Canadian insured loans. GMAC has also closed 200 retail mortgage offices.

GMAC and Cerberus declined to comment. GM did not respond to a request for comment.

MOST DIFFICULT ENVIRONMENT EVER

If ResCap fails, it will join the ranks of major mortgage lenders that have fallen victim to the worst U.S. housing crisis in decades. Countrywide Financial Corp and Wachovia Corp WB.N agreed to be acquired, and IndyMac Bancorp Inc (IDMCQ.PK) and Washington Mutual Inc (WAMUQ.PK) failed.