GMAC mortgage lender's future in doubt
NEW YORK (Reuters) - The Residential Capital LLC affiliate of automaker General Motors Corp (GM.N) may soon join the ranks of U.S. mortgage lenders that failed to navigate the deepening housing crisis.
The specter of a ResCap failure grew after parent GMAC LLC on Wednesday said "substantial doubt exists regarding ResCap's ability to continue as a going concern" absent more support from GMAC, best known for lending to GM customers.
GM owns 49 percent of GMAC, and both are trying to conserve cash as auto sales plummet, vehicle leases lose value, and more borrowers miss payments. Private equity firm Cerberus Capital Management LP CBS.UL owns the rest of GMAC.
GMAC is also trying to become a banking holding company, letting it tap the U.S. Treasury Department's $700 billion bailout fund, and may refinance much of its debt.
Some analysts said ResCap may not survive beyond early 2009 despite having already slashed risky lending, reduced risk on its balance sheet, and shed some 10,000 jobs over two years.
"It's not a foregone conclusion that they're done, but they're close," said David Lykken, president of the consulting firm Mortgage Banking Solutions in Austin, Texas, who said he has clients that may want to buy ResCap assets.
A sale of all or part of the unit would be one possibility, but likely only at a distressed price.
"Given market conditions, and given that collateral values are still falling in markets where they lent, I think a bankruptcy is imminent, within the next 60 days," Lykken said.
Christopher Wolfe, an analyst at Fitch Ratings, added: "If GMAC can't provide support that ResCap needs, then bankruptcy is an option for ResCap."
GMAC and Cerberus declined to comment. GM and ResCap did not immediately return requests for comment.
CASH IS KING
ResCap was the nation's seventh-largest mortgage lender from January to June, the newsletter Inside Mortgage Finance said. But loan volume fell 59 percent in the third quarter to $11.9 billion as ResCap shut dozens of retail mortgage offices, and halted lending outside the United States and Canada.
The lender has lost $9.1 billion in the last two years, and said that as of September 30 it wasn't receiving interest payments on 21.8 percent of loans, up from 5 percent a year earlier.
"We can only describe credit quality trends as ugly," CreditSights Inc analyst Richard Hofmann wrote.
"With equity down to $2.3 billion, clearly ResCap cannot survive much longer at its current quarterly loss rate," he added. "Absent of any government support, we believe GMAC's statement points toward the filing of ResCap for bankruptcy." Continued...
