GMAC Posts $724 Million Loss as Home Loans Sour

(Bloomberg) -- GMAC LLC, the auto and mortgage lending company once owned by General Motors Corp., posted a $724 million loss in the fourth quarter as home buyers fell behind on their mortgage payments.

The net loss compares with a profit of $1 billion a year earlier, the Detroit-based company said in a statement today. GMAC said it's talking to buyers for parts of the Residential Capital mortgage unit, which recorded a $921 million quarterly loss.

GMAC vowed today to make money in 2008 after falling home prices and record U.S. foreclosures led to a $2.3 billion companywide loss for 2007. Provisions for bad mortgages probably will decrease this year, GMAC predicted. The auto finance unit remained profitable, overcoming a 6.1 percent decline in GM's North American auto sales last year.

``While results were weak, we suspect investors will take some encouragement from GMAC's expectation of profitability in 2008,'' said Himanshu Patel, an analyst at JPMorgan Chase & Co.

ResCap's future may include acquisitions, sales, alliances and joint ventures, GMAC said. Discussions are in various stages and GMAC said it's unclear whether any transaction will result. The unit lost $4.3 billion for the full year.

GMAC said it bought $740 million of ResCap debt during the quarter to bolster the unit's capital. ResCap ended the period with equity of $6 billion, which GMAC said exceeded requirements set by lenders and ``the amount needed to support its ongoing operations.''

Auto Finance

Profit at GMAC's auto finance unit declined 77 percent to $137 million because of reduced gains from the sale of contracts signed with car buyers. Income at the insurance business dropped 91 percent to $68 million because of lower capital gains and higher losses on customer claims. GMAC's auto finance business had its lowest net quarterly profit in more than two years.

Moody's Investors Service downgraded ResCap's senior debt today to B2 from Ba3 and dropped the senior unsecured rating of GMAC to B1 from Ba3, with a negative outlook for both firms. The ratings company's statement cited lower liquidity, ``the risk that ResCap's net worth could fall below its minimum net worth covenant if GMAC doesn't provide more support, and ``Moody's belief that ResCap's franchise is impaired.''

ResCap's loss stemmed from a higher provision for bad loans, fewer new mortgages and markdowns on the value of securities and loans held for sale. ResCap was the eighth- biggest mortgage originator last year with $94 billion in loans, according to a preliminary tally by trade journal Inside Mortgage Finance.

 

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