September 3, 2008 / 4:31 PM / 11 years ago

GMAC to cut 5,000 jobs at ResCap mortgage unit

NEW YORK (Reuters) - GMAC LLC, the auto finance and mortgage company, plans to eliminate about 5,000 jobs at its Residential Capital LLC unit and close all 200 GMAC Mortgage retail offices to combat weak housing and credit markets.

A view of a five-bedroom and two-bath home in Detroit, September 23, 2007. REUTERS/Rebecca Cook

The job cuts will affect about 57 percent of ResCap’s work force, leaving the mortgage unit with 3,800 employees, GMAC spokeswoman Gina Proia said.

Most of the cuts will take place this year.

GMAC said it will stop offering mortgages through its Homecomings Financial broker channel. It also will evaluate strategic options for GMAC Home Services, which helps companies relocate employees, and “non-core” mortgage servicing businesses. GMAC plans to keep offering mortgages directly “where there is a secondary market to sell the loans.”

“While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment,” ResCap Chief Executive Tom Marano said.

The cutbacks suggest deepening problems for GMAC’s owners, private equity firm Cerberus Capital Management LP and the automaker General Motors Corp. Cerberus in 2006 bought 51 percent of GMAC from GM, which owns the rest.

GMAC arranged a $60 billion refinancing package in June to stave off a collapse of ResCap, which has lost $7.2 billion in seven straight unprofitable quarters.

More than 100 mortgage lenders have quit the industry since the start of 2007. GMAC has lost money in four consecutive quarters. Some ResCap debt trades at less than one-third of face value, suggesting investors remain concerned about the unit’s ability to meet its obligations.

“We’ve been keeping a list of who is next to go under in the mortgage area, and ResCap has been at the top,” said David Olson, president of Wholesale Access, a Columbia, Maryland firm that tracks the mortgage industry.

“General Motors and Cerberus have been losing money from this business, and with delinquencies rising in auto finance, that’s another part of their problem,” he continued. “They have to cut back somewhere.”

GMAC is based in Detroit, and ResCap in Minneapolis.

ResCap was the seventh-largest U.S. mortgage lender from January to June, making $35.7 billion of loans, according to the newsletter Inside Mortgage Finance. ResCap had about 14,000 employees at the start of 2007.

LOSSES MOUNT

In the April-June period, ResCap lost $1.86 billion, while GMAC overall lost $2.48 billion, hurt by write-downs of sport utility vehicle leases.

Spokeswoman Proia said GMAC planned to expand its servicing operations, and focus on strategic lending. She declined to say whether GMAC hired outside advisers to conduct asset sales.

Cerberus was not immediately available for comment. The firm also owns the automaker Chrysler LLC.

GMAC expects 3,000 of the job cuts to take place this month, and most of the rest by year end. It anticipates a $90 million to $120 million charge tied to the first round of job cuts, and another charge for the rest.

Olson said it was unclear how well a smaller ResCap might operate, or whether GMAC might successfully sell assets.

“There are no buyers, that’s the problem,” Olson said. “And with securitization markets still closed, there is no liquidity.”

GM shares closed up 62 cents, or 5.8 percent, at $11.27 on the New York Stock Exchange.

ResCap debt trades at deeply “distressed” levels. Its 8.5 percent notes maturing in 2013 closed Wednesday at 25.5 cents on the dollar, yielding 53.11 percent, the Financial Industry Regulatory Authority bond pricing service Trace said.

Additional reporting by Megan Davies; Editing by Leslie Gevirtz and Andre Grenon

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