GMACCM Deal Collapsed Over Reps and Warranties

In the end, the giant automaker from Detroit decided that it loves the commercial lending and servicing business after all.

The sale of GMAC Commercial Mortgage - the nation's largest commercial servicer - fell apart in early December amid disagreements over "reps and warranties" to Deutsche Bank, industry sources told Mortgage Servicing News.

"In the end, GM wasn't willing to provide what Deutsche Bank wanted," said one commercial mortgage executive.

Commercial mortgage officials following the deal said they were not surprised it collapsed. "I think a lot of people are surprised that it ever got to this stage," said one executive.

GM had been trying to sell GMACCM for a year. But in December it became clear to the automaker that it could not come to terms with the Germany-based bank. (MSN did not publish last month.)

GM decided to keep the unit, noting that it has "continued to post record operating results, with origination volume and earnings during the first nine months of 2003 already at or above the levels" achieved last year.

One source told MSN that analyzing GMACCM is not an easy task, given all the "B-piece" securities it owns.

Sources noted that in the fall GM had a deal, in principal, to sell GMACCM to Deutsche Bank for about $1 billion, pending additional due diligence. "But given GMAC's size, three months was just not enough time," said the source.

He said there were additional "complications" as well. A few months back, one commercial mortgage executive familiar with GMACCM described it as being "too leveraged," noting that the company has "a lot of 'first loss' pieces on residuals in the portfolio."

Another factor in GM initially trying to sell GMACCM was the pension obligations of the parent. Until the stock market rally in 2003, GM's pension fund was severely underfunded. It had hoped to raise cash by selling GMACCM and bolster the pension fund with the money.

But according to Goldman Sachs, the pension fund is returning to health after a 20% gain in 2003.

Because of downgrades on General Motors, issuing commercial paper to fund the mortgage division had become expensive, commercial executives said.

All the while GM was negotiating with Deutsche, it was looking for alternative funding sources, said one source.

GMAC president Eric Feldstein noted in a statement that because the commercial sector is so strong, "we now believe alternative large-scale funding mechanisms should be available without requiring a sale of the business."

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