Treasury needs more deliberation on GMAC

WASHINGTON (Reuters) - The U.S. Treasury intends to provide more taxpayer capital to finance company GMAC LLC, but needs to deliberate further on the deal's structure, a senior U.S. Treasury official said on Thursday.

"We're going to get to the right conclusion as fast as we can," Herbert Allison, who administers the Treasury's $700 billion bailout fund, told Reuters in an interview. "I don't know exactly what date that will be, if it will be the ninth (of November) or later in November."

The Treasury's Capital Assistance Program, under which the investment would be made, has a deadline of November 9, which is Monday, for closing transactions. Allison said his key objective is "protecting the interests of taxpayers while contributing to financial stability.

"GMAC plays a very important role in the auto sector and even beyond that," he said. "We understand its importance and that's why the government deemed it significant enough to contribute capital to and that's why we are contributing more.".

U.S. Senate Banking Committee Chairman Christopher Dodd said on Wednesday that GMAC would receive somewhere between $2 billion and $5 billion in taxpayer capital on top of the $12.5 billion that it has already received.

GMAC also announced a $767 million net loss for the third quarter on Wednesday, citing red ink in its mortgage business.

Allison, the Treasury's assistant secretary for financial stability, declined to elaborate on the size of the new Treasury investment.

He said this was not "third round" of capital injection for GMAC as portrayed in the media. Additional capital assistance was envisioned when GMAC went through stress testing last spring and eventually was ordered by regulators to raise $11.5 billion in capital.

"This was contemplated last spring when we created the facility for GMAC. So it's not a surprise to us that we are contemplating another contribution at this point. That was envisioned because we didn't expect that they'd be able to tap the capital markets like some of the banks did. This is not a surprise to us. It was something we were expecting."

GMAC received a $5 billion capital injection last year from Treasury, and in May, received $7.5 billion more, shortly after regulators ordered it to raise $11.5 billion in new capital following stress tests.

The company, which provides financing to buyers of both General Motors Co. GM.UL and Chrysler Group vehicles, also has sold some $7.4 billion in government-backed debt.

Asked if the contribution would put GMAC on a sound financial footing so that no more taxpayer support would be needed, Allison said.

"This is the amount the supervisors deemed necessary under the stress test, just like all the other banks that went through that process."

MORTGAGE MODIFICATION CHALLENGES

Allison, a veteran investment industry executive who ran mortgage finance giant Fannie Mae (FNM.N) for several months before joining the Treasury in April, said the mortgage servicing industry was ahead of schedule in achieving the Treasury's goal of 3 million to 4 million mortgage modifications by 2012. But he noted several challenges, including a difficult economic environment.

"One is reaching people who are eligible. Secondly, making sure that we, through the servicers, can convert as many of the trial mods into permanent mods as possible. We expect that not every trial mod will make it into a permanent mod."

Before working in Washington, Allison held some of Wall Street's top jobs. He was the chief executive of TIAA-CREF, the large U.S. retirement system for college professors. He previously was the president of Merrill Lynch & Co. after nearly 30 years there.

Studying the problem of keeping the unemployed in their homes "is something we're giving very close attention," he said, noting that it is very complicated.

Treasury's main program for capital investments into banks, the Capital Purchase Program, is being effectively shut down after a November 9 deadline for final investment applications to make way for a new capital program aimed at boosting community bank lending to small businesses.

Allison said the Treasury has not seen a massive influx of applications for the Capital Purchase Program as the deadline nears.

"There could be one or two or a handful, perhaps, at most. But we haven't seen a rush to participate at this point, which is another good sign, actually." he said.

In the meantime, Treasury officials are talking to lenders to determine the size and shape of the new small business program, which would provide cheaper capital to banks under $1 billion in assets and community development financial institutions.

"It will be heavily affected by the appetite of these smaller institutions, first of all and the final terms -- again that's why we are reaching out, to try to better gauge what the demand will be and how the demand might be affected by a few tweaks to the program here and there."

(Reporting by David Lawder and Corbett B. Daly;

Editing by Jan Paschal)