News

Finance company GMAC LLC lost $2.52-billion (U.S.) in the third quarter, hurt by the housing slump and vehicle lease writedowns, and said its mortgage unit, one of the nation's largest home loan providers, may not survive.

The fifth straight quarterly loss brought GMAC's losses since the middle of 2007 to $7.9-billion.

Its mortgage lending unit, Residential Capital LLC, lost $1.91-billion in the quarter, its eighth straight quarter in the red, bringing its losses over that two-year period to $9.1-billion.

GMAC has slashed lending after losses soared because of the U.S. housing slump, mounting customer defaults and falling vehicle sales. 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.

“Economic and market conditions created an unrelenting environment for our business,” GMAC chief executive Alvaro de Molina said in a statement. “In this climate, our primary objective is to make prudent use of our resources and take the steps needed to address the reduced access to liquidity.”

The results will hurt General Motors Corp, which still owns 49 per cent of Detroit-based GMAC after selling the rest in 2006 to private equity firm Cerberus Capital Management LP. GMAC's fate is also intertwined with a potential merger of GM with Chrysler LLC, also controlled by Cerberus.

ResCap was the seventh-largest U.S. mortgage lender from January to June, according to the newsletter Inside Mortgage Finance. But the Minneapolis-based lender has since stopped making many riskier U.S. loans, and halted all non-U.S. mortgage lending apart from Canadian insured loans. GMAC has also closed 200 retail mortgage offices.

GMAC said it forgave $197-million of ResCap obligations in the third quarter, and an additional sum in October, to ensure ResCap had sufficient tangible net worth. But ResCap still struggles to maintain sufficient capital and liquidity, it said.

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

GMAC and Cerberus were not immediately available for comment.

GMAC reported a loss of $1.6-billion in the year-earlier third quarter.

GMAC is seeking to become a bank holding company, and this week said it plans to restructure much of its debt, less than five months after completing a $60-billion refinancing.

A restructuring would allow GMAC to raise capital needed to become a bank holding company, and enable it to participate in the government's plan to recapitalize banks and buy toxic assets. It is also participating in a Federal Reserve commercial paper program to help unlock credit markets.

Analysts at CreditSights Inc estimated that GMAC would need to raise at least $3.8-billion to achieve a Tier-1 capital ratio, which measures its ability to cover losses, of 8 per cent. Regulators consider 6 per cent sufficient.

Cutbacks in GMAC's lending were responsible for about half of GM's 45 per cent plunge in October vehicle sales, the automaker said. “It was like someone turned off the lights,” GM North American sales chief Mark LaNeve said on Monday.