GM's Woes May Force Possible Sale of GMAC

Cash-strapped General Motors is exploring a partial sale of General Motors Acceptance Corp., which controls the nation's seventh-largest mortgage banking franchise.

As Mortgage Servicing News went to press this month, GM announced a third-quarter loss of $1.6 billion, revealing for the first time that it is toying with the idea of shedding a considerable stake in GMAC.

In a statement, GM said it is "exploring the possible sale of a controlling interest" in its financial services division "to a strategic partner."

GM, as yet, does not have a particular strategic partner in mind and has just started the sale process, said a GMAC spokesperson.

GMAC Residential of Horsham, Pa., and its affiliate, Homecomings Financial, Minneapolis, have a combined residential servicing portfolio of $345 billion. Both units are housed in a holding company, Residential Capital Corp., which is 100% owned by GMAC.

GM said the impetus for the sale is restoring GMAC and ResCap's investment grade ratings and renewing its access to low-cost financing in the capital markets.

Rating agencies, taking note of the GM's financial woes, are keeping a close watch on ResCap's debt. Fitch has a "BBB-" rating on ResCap's senior debt and has placed the company on its watch list. The worse the credit rating, the higher the yield ResCap will be forced to pay investors in its bonds. With profit margins in mortgage banking coming under pressure, GMAC cannot afford to see its cost of funds increase dramatically. In a research note Fitch said the sale of GMAC presents "unique challenges" because of its size.

At June 30, GMAC had $309 billion in on-balance sheet assets. Fitch notes that GM likely will "pursue a transaction with some urgency if for no other reason to maintain GMAC's franchise value."

Another GMAC-related company that is not part of ResCap, GMAC Commercial, is slated for sale to a consortium of investors including Lewis S. Ranieri, the "father" of the mortgage-backed security, Kohlberg Kravis Roberts and Goldman Sachs.

The group will buy 60% of GMAC Commercial, leaving a 40% ownership stake at GMAC, the parent of ResCap. The sale is expected to close by year-end. GMAC Commercial is the nation's largest commercial mortgage banking firm.


($ in millions)

Unit Servicing Serv. Serv. Mort.

Name Portfolio at 6/30 Rank Mkt. Sh. Type

GMAC Commercial $263,188 1 10.95% com.

GMAC Residential $257,781 7 3.24% res.

Homecomings Fin. $87,484 14 1.10% res.

Notes: GM is putting the final touches on a partial sale of GMAC Commercial. The deal is expected to close by year-end. Com. = commercial; Res. = residential.

Source: National Mortgage News/Quarterly Data Report. Questions? Email: Paul.MuoloSourceMedia.com.

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