Residential Capital, LLC* - Subsidiary of GMAC

Update - 2009-11-17: GMAC's Board of Directors, independent of any federal influence, forced the resignation of GMAC Financial Services' CEO Alvaro de Molina on Monday according to a report in the Wall Street Journal. He was replaced by Michael Carpenter, who told Bloomberg in an interview that Rescap "has been a drag on the company and we need to find a solution." What that solution may be remains to be seen:

"The government is running into bailout fatigue and GMAC is realizing it can't rely on this pool of support from the taxpayers," said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania. "The easiest group of assets to jettison, if you want to call them assets, is ResCap. They've been a source of a huge amount of embarrassment and pain."

The shakeup comes on the heels of news that GMAC is seeking yet a third infusion from the government's Troubled Asset Relief Program. GMAC reportedly asked the Treasury to delay its investment to allow the new CEO to assess the company's needs. Carpenter told the New York Times "The $5.6 billion is off the table. What the exact number is, I don't know.

Update - 2009-02-03: GMAC posted preliminary results for the fourth quarter and full year 2008 today, with ResCap reporting a $981 million loss on the quarter. GMAC was granted bank holding status and received a $5 billion investment from TARP. ResCap got a $1.67 billion equity contribution from GMAC, and gave up its non-voting equity interest in the parent of GMAC Bank:

"On Jan. 30, 2009, GMAC acquired 100 percent of ResCap's non-voting equity interest in IB Finance Holdings, the parent company of GMAC Bank. As a result, all voting and economic interests in IB Finance are now owned directly by GMAC."

Another apron string cut detangling ResCap's ties to the bank, yet GMAC remains steadfast in its commitment to auto and mortgage finance:

"Looking ahead, challenges still remain and GMAC will focus on transitioning the company to meet all bank holding company requirements; further strengthening the liquidity and capital position; building a world-class organization; expanding and diversifying customer-focused revenue opportunities in auto and mortgage; and driving returns by repositioning the risk profile and maximizing efficiencies," de Molina said.

Update - 2008-12-26: Shortly after the close of trading on Christmas Eve, GMAC announced it had received Fed approval to become a bank holding company. Quoting GMAC CEO Alvaro G. deMolina, CNN Money reported "GMAC will be competitively positioned for the long-term to provide financing to auto and mortgage consumers and businesses such as automotive dealers." Under the federal order, GM will reduce its ownwership interest in GMAC from 49% to 10%, with remaining equity interest being transferred to a trustee. Cerberus' 51% interest will be reduced to 33%, distributing those interests to its respective fund investors.

Converting to bank holding status makes GMAC eligible to apply for funds from the TARP program. How much remains to be seen. CNBC reported that spokesperson Gina Proia said "GMAC has submitted an application to the Treasury Department for money from the government rescue fund, though she declined to say how much the company is seeking."

Employee reaction to the news at Residential Capital LLC was mixed with optimism. Wrote one worker at the Ft. Washington, PA call center:

"The conditions have been rather awful. Employees who have worked for ResCap for years are walking out and not bothering to even say good bye. We are dropping massive amounts of calls and last week the hold times were as long as two hours during busy times of day. Moreover, we do state by state licensing so even if a customer eventually gets through, we often have to tell them that we're not licensed in their state and will have someone call them back. Obviously, not everyone gets a call back...

We are priced way out of the market. We generally have to charge 2.5 points to offer the same rate most other mortgage companies are offering with zero points. I would say right now things are as bad as they can be, so this news can only mean that things will get better. I think we'll stay open, get national licensing so every loan officer can help every call, reduce our pricing to be more competitive, and at least for now remain a major presence in the business. "

Update - 2008-12-13: GMAC has once again extended the deadline in a press release citing an "agreement in principal" that represents "substantial progress." In the same breath... "significant additional participation will also be required."

"GMAC announced that it has extended the early delivery time with respect to the offers to 5:00 p.m., New York City time, on December 16, 2008 and extended the expiration date of the offers to 11:59 p.m., New York City time, on December 26, 2008."

The previous extension only yielded an additional commitment of less than $1 billion:

"To date, approximately $6.8 billion in aggregate principal amount (or 24%) of the outstanding GMAC old notes have been tendered in the GMAC offers and approximately $2.4 billion in aggregate principal amount (or 25%) of the outstanding ResCap old notes have been tendered in the ResCap offers."

"My boss says it doesn't look good," an inside source told us. "If we weren't looking [for work elsewhere] then we'd be foolish."

Update - 2008-12-10: GMAC is woefully short of its goal to "buy or swap" at least 75% of the $38 billion of debt held by ResCap and other divisions that would enable it to become a bank holding company. From the AP:

"So far, only about $6.3 billion, or 22 percent, of the outstanding GMAC notes have been tendered and about $2 billion, or 21 percent, of the outstanding ResCap notes have been tendered, GMAC said."

The deadline for the offers has been extended to Friday, December 12, 2008. "If the offers aren't successful," the article goes on, "GMAC said it will withdraw its application to become a bank holding company." Bloomberg reports:

"The company said that if it doesn't complete the swap and win Fed approval by Dec. 31, "it would have a near-term material adverse effect on GMAC's business, results of operations, and financial position.""

Update - 2008-11-20: In its 8K filing with the SEC today, GMAC announced plans to raise an additional $500 million "to improve ResCap's liquidity." Without GMAC's continued support and the successful execution of this and other initiatives, it is acknowledged that ResCap's days may be numbered.

"In light of ResCap's liquidity and capital needs, combined with volatile conditions in the marketplace, there is substantial doubt about ResCap's ability to continue as a going concern."

Update - 2008-11-05: 2008's third quarter earnings are out, and the picture still looks grim for Residential Capital. From Reuters:

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."

Having heard that repeatedly for over a year now, we're inclined to think bankruptcy as an "option" is more of an "inevitability."

Update - 2008-09-24: From a press release yesterday, Canada's Brookfield Residential Property Services ("BRPS"), a division of Brookfield Asset Management Inc. announced it had entered into an agreement with GMAC Holdings and Residential Capital LLC to acquire GMAC Home Services LLC.

"The GMAC Home Services' business units that are part of this acquisition include: GMAC Global Relocation Services, GMAC Real Estate and GMAC Home Services Mortgage."

What might not be immediately obvious here is the implication for ResCap. This leaves Residential Capital LLC standing with Ditech, GMAC Bank, Homecomings Financial (now just a servicing arm) and the skeletal remains of GMAC Mortgage. Having divested all but the remaining mortgage subsidiaries, is it too much of a leap to conclude ResCap is now positioned for the bankruptcy that has been repeatedly predicted?

Residential Capital, LLC should not be confused with Residential Capital Mortgage Corporation in Henderson, NV.

Update - 2008-09-08: The Mortgage Lender Implode-O-Meter has received credible information that GMAC may file for bankruptcy as early as Wednesday, September 10, 2008. We do know they are scrambling to move/sell assets prior to this tentative filing date, and we are attempting to confirm the information received.

GMAC's Gina Proia in Media Relations got back to us and suggests "There is no basis for this type of speculation." A full statement of denial is here.

Described on their web site as GMAC Financial Services, GMAC "operates in approximately 40 countries in automotive finance, real estate finance, insurance and commercial finance businesses."

On Nov. 30, 2006, GM sold a 51 percent controlling interest in GMAC to a consortium of investors led by Cerberus Capital Management, L.P., a private investment firm, and included Citigroup Inc., Aozora Bank Ltd. and a subsidiary of The PNC Financial Services Group, Inc.

According to Bloomberg, Aozora Bank Ltd., the Japanese lender controlled by Cerberus Capital Management LP, fell to a record low in Tokyo trading after a report said it may post a loss for the fiscal first half ending Sept. 30.

"Aozora plans to take a writedown of 17.8 billion yen this year on an investment in GMAC after the partly owned finance unit of General Motors Corp. recorded a $2.5 billion loss in the second quarter."

Stuart Hoffman, chief economist at PNC Financial Services Group (commenting on the Freddie/Fannie bailout), expects "the economy will flatline" which does not boost the overall outlook for investments like their part in GMAC.

Exactly which GMAC units are involved has yet to be ascertained. Stay tuned.

Update - 2008-09-02: A reliable source told us GMAC Mortgage would be shutting down its Retail origination platform, letting go "LO's, RM's, DM's, assistants, and the like." We were given to understand one region had well in excess of 400 loan officers, and while the tipster was unsure how many regional offices were left, the number of employees affected would reportedly "be in the thousands... all retail branches." Today, the official announcement came out, and GMAC Mortgage retail is not the only part of ResCap that's being impacted. From an internal memo sent to all employees by ResCap Chairman and CEO Tom Marano:

In order to address these and other developments in the credit markets, we are taking action today to streamline and sharpen the focus of ResCap's operations. These changes are painful. However, I firmly believe that they are necessary to reposition ResCap as a more cost-efficient and effective company.

These actions will help us to significantly reduce our operating costs by year end. Achieving these numbers will regrettably impact approximately 5,000 associates in ResCap and in the corporate functional groups that support ResCap's businesses.

A separate announcement also went out to brokers. All 200 GMAC Mortgage retail offices are being closed, and the Homecomings Wholesale Channel will cease loan originations through brokers. Additional consolidation will occur in Information Technology, Risk, Finance, Human Resources, Legal and Procurement. Noted in the announcement:

"Business Capital Group (BCG), which provides capital solutions to builders and developers, is substantially contracting the scope of its operations due to the ongoing decline in credit conditions and reduced consumer demand in the housing markets."

Speaking with a recently displaced employee, we were told Ditech's direct (phone/internet) lending platform would be the only retail origination operation remaining under the ResCap umbrella of companies. GMAC Bank's Correspondent and Wholesale Lending divisions continue to do business in the secondary market, but have drastically cut back product & program offerings over the past months and now offer strictly Agency and FHA/VA loans. This will be applied to all of ResCap's origination channels, as the memo states:

"Going forward, this means that we will only originate loans that are:

- Supported by Government Sponsored Enterprise programs such as Fannie Mae, Freddie Mac and Ginnie Mae, or which can be sold to another guaranteed investor partner; and

- Originated through the following ResCap channels: GMAC Bank correspondents, including support for lenders with warehouse lines of credit; GMAC Mortgage direct; ditech call centers; and the GMAC Mortgage Charlotte, N.C., call center."

Bloomberg and MarketWatch are reporting the layoffs amount to nearly 60% of ResCap staff, and all 200 GMAC Mortgage retail offices will be closed. ResCap will realize charges of $90 to $120 million related to the initial 3,000 job cuts, with more projected in the future for the remaining 2,000. See the topic in our Discussion Forum for additional detail and commentary specific to Homecomings Financial.

Update - 2008-08-22: In a revised announcement posted on their web site today, GMAC Bank's Correspondent Funding corrected their previous suspension of Jumbo products to specify it was just 40/30 balloon jumbo products that were being eliminated.

Update - 2008-08-21: We continue to hear about more contractions at GMAC Bank. Writing about their Correspondent lending division a tipster said, "GMAC is dropping nearly all of it's programs, and killing deals right and left for no apparent reason. It's a pretty good bet they will cease operations in the next couple of weeks." GMAC announced all Jumbo products were being suspended effective today. Another tipster sent this news:

"GMAC-RESCAP, LLC mortgage Recruiters were notified early today by company management that the entire recruitment team is to be laid off effective 9/1 or 9/2. They were not given specific reasons for the layoff, only that it would happen on 9/1 or 9/2. This affects their entire remaining national team of 8 Recruiters. Also, David Ahlers, the company's top HR manager, has left the company. The company has been reduced to 3 operating divisions (from 6)and there is a total hiring FREEZE on ALL positions company wide. Some key, long time GMAC-RESCAP retail lending managers have also left the company."

Update - 2008-08-12: Tips are coming in today that GMAC has announced their exit from Home Equity lending. "GMAC Mortgage just announced they are closing their Troy MI processing center and cutting the regions down to 3. They also are suspending the entire Home Equity loans," one tipster wrote. "I believe they announced it by a conference call."

Another source confirmed the above information, and indicated there was a memo that had been sent to employees. We are trying to obtain a copy.

In their 2008-08-08 10Q filing for the second quarter of 2008, Rescap reported a $1.9 billion loss, including $233.3 million in net charge-offs:

"In our domestic mortgage business, we have shifted the bulk of our loan production to prime mortgage products that conform to the requirements of government-sponsored enterprises. In our international business, we generally restrict originations to those products and markets for which liquidity remains available, and we have suspended new loan originations in the United Kingdom, Europe and Australia."

Update - 2008-08-06: Tips coming in have alerted us that the Bellevue, WA office of Homecomings has now received notice of its shutdown. One tipster said, "mgmt had a conference call yesterday at 4pm and then stayed in the conf room til late - they had a meeting today telling them all."

We called the office and confirmed the announcement. Approximately 80 employees were affected.

Update - 2008-07-29: In an announcement sent to brokers (view pdf), Homecomings said they were discontinuing home equity lending entirely. Loans in the pipeline must be locked by 2008-07-31. This includes both closed-end seconds and home equity lines of credit.

Update - 2008-06-20: Homecomings is hunkering down with branch consolidations and lay offs. From a 2008-06-17 memo sent to employees:

After thorough research and consideration, we have determined that it will be necessary to consolidate the Cherry Hill, Petaluma, and Charlotte facilities by moving selected operations to our Dallas, Ft. Washington, and Minneapolis locations. The Cherry Hill facility will close on October 4, 2008 and the Petaluma facility will close on October 31, 2008. Charlotte will close on September 5, 2008.

Approximately 337 associates in Cherry Hill, 62 associates in Petaluma, and 71 associates in Charlotte will be impacted by these changes. Ninety-six positions will be eliminated and 374 associates will be offered positions at alternative sites.

A tipster told us there remain about 80 people in the Bellevue office. "Account managers laid off... is about 8," the source wrote. "There will be more to come in this branch in the next 30 days if it [stays] open at all."

Meanwhile, GMAC & Rescap stay atop the news, and the downgrades continue. Reuter's reports Rescap now accounts for 85% of GMAC's net worth.

"ResCap and GMAC earlier this month completed a $60 billion refinancing to buy time to turn around the struggling lender, which is paying a steep price for its risky bets on residential mortgage loans."

The refinancing included additional capital infusions from GMAC and Cerberus of $1.4 billion dollars, as reported when the deal was completed on 2008-06-04.

Update - 2008-06-03: Rescap's floundering becomes markedly more desperate. Today in Yahoo Business:

Residential Capital LLC, the mortgage lending unit of GMAC LLC, said Tuesday it needs more than three times more cash to stay in business than it estimated just weeks ago.

ResCap estimates it now needs about $2 billion in cash by the end of June to meet liquidity demands, according to a regulatory filing with the Securities and Exchange Commission. It previously estimated it needed just $600 million by the end of the month.

Update - 2008-05-06: Rescap has inched steadily closer to bankruptcy since our last update, as recent news suggests. Bloomberg reports today that GMAC "may keep the mortgage unit afloat long enough to find a buyer or break it up."

Yesterday, Rescap announced an offering to exchange $14 billion of notes to extend maturies between 2010 and 2015 for "as little as 80 cents on the dollar," Bloomberg reported. "To finance the debt restructuring, ResCap is seeking a new $3.5 billion credit line from its parent GMAC," the article notes.

Rescap admits even this may not be enough in it's Q1 8-K filing with the SEC:

"There is a significant risk that we will not be able to meet our debt service obligations, be unable to meet certain financial covenants in our credit facilities, and be in a negative liquidity position in June 2008."

Rescap (Residential Capital, LLC) is a wholly owned subsidiary of GMAC, LLC (which is owned by General Motors Corp. and Cerberus Capital Management L.P.). Rescap subsidiaries at risk of BK or being dumped include Ditech, GMAC Bank, GMAC Mortgage, and Homecomings Financial.

Update - 2008-04-24: In news we posted today, HousingWire reports Rescap "had borrowed $468 million ... against a $750 million credit facility" newly established with GMAC on 2008-04-18. Also of concern: $875 million in revolving credit and a $1.75 billion dollar loan, set to mature in June and July respectively.

On 2008-04-07 TheStreet reported that GMAC "bought ResCap debt with a face value of $1.2 billion in the open market for just $607 million" and "investors are questioning how long the company will continue to invest in ResCap to keep the second largest independent mortgage lender out of bankruptcy."

Update - 2008-02-22: In an article out today, S&P downgrades will put more pressure on GMAC to inject more money, or bail out:

"NEW YORK, Feb 22 (Reuters) - GMAC LLC and its Residential Capital LLC mortgage unit were cut several notches deeper into junk status by Standard & Poor's, which said mounting mortgage losses might require new capital injections from General Motors Corp (GM.N: Quote, Profile, Research) and Cerberus Capital Management LP [CBS.UL].

S&P on Friday downgraded GMAC three notches to "B-plus," its fourth-highest junk grade, from "BB-plus," and cut ResCap four notches to "B" from "BB-plus." Its rating outlook is negative, suggesting further downward pressure."

Update - 2007-11-23: Rescap appears to be heading closer to the Imploded list per an article November 20, 2007:

"NEW YORK (Reuters) - Bond investors are betting that finance company GMAC, and its major backer Cerberus Capital LP (CBS.UL: Quote, Profile, Research), will not provide further capital injections for GMAC's unit Residential Capital (ResCap), the second-largest independent U.S. mortgage lender.

Bonds of ResCap already trade at levels reflecting bankruptcy fears, and investors say ResCap would need at least another $1 billion capital injection from GMAC or Cerberus in the next month to avoid violating loan agreements with debt investors."

Click here to read the entire article.

Update (2007-10-26): Homecomings Financial is an indirect wholly owned subsidiary of GMAC LLC.

According to a Manager who is being laid off this week, Homecomings is closing all offices this year and will maintain one office in each of North Carolina, Texas, and Washington.

A Mortgage Broker in California received this from their AE:

"Homecomings Financial is going through a company wide restructuring due to the current market conditions. Unfortunately, we had to layoff 3,000 people today, which is 25% of our workforce. Our Newport Beach office will be closing as of December 31st, 2008 and migrating with the Bellevue, Washington office. In addition, in saddens me to say that every AE that has been with the company for less than 12 months has been layed off, which includes me..."

Another reader reports the following, which 'appears' to be an internal memo:

"Effective immediately, Homecomings Financial will be sharing customer information with its affiliate, GMAC Bank, which will evaluate qualified loan transactions for purchase. Before GMAC Bank can consider a loan for approval, Homecomings Financial must first obtain a complete and signed GMAC Bank Opt In Agreement from all borrowers listed on a loan application in order for the application to be reviewed, processed and underwritten by GMAC Bank. Homecomings Financial will return any loan applications that do not have a complete and signed GMAC Bank Opt In Agreement, which permits Homecomings Financial to share personal information with GMAC Bank. Brokers can obtain the GMAC Bank Opt In Agreement on our web site at www.hfwholesale.com. Nothing contained herein shall be considered a commitment to lend on the part of GMAC Bank. Homecomings Financial and GMAC Bank are Equal Housing Lenders. GMAC Bank is a Member FDIC."

Original Article (2007-01-16):

Will cut around 1,000 jobs.

Causing headaches for GM; even though they sold GMAC in Nov 2006:

GM, which announced Thursday that it wouldn't report its results as scheduled tomorrow because of accounting problems and the need to finalize GMAC numbers, sold 51% of GMAC for $14 billion to Cerberus Capital Management. The deal closed Nov. 30, and accountants for GM and Cerberus have since been poring over the books to make sure the $14.4 billion tangible net book value ascribed to GMAC at the time is reliable. If the value is higher or lower, GM or Cerberus may need to pay out certain settlements.

...

Lehman Brothers auto analyst Brian Johnson said in a note Friday that complications related to estimating the value of GMAC's [Residential Capital, LLC] mortgage unit could cost the auto maker $300 million to $400 million in cash charges in the first half. [Residential Capital, LLC] has long been viewed as the crown jewel in the GMAC portfolio, but it has fallen under industrywide pressure that has hurt many traditionally strong lenders and may have diminished [Residential Capital, LLC]'s value.

A Lehman update has subsequently put the estimate of the write-downs and other related expenses at $950 million.

I guess GM was too slow.

*Note: Not to be confused with Residential Capital, LP, another Lender.