GMAC Adds Holding Unit
General Motors Acceptance Corp. here has restructured its residential mortgage business, placing GMAC Mortgage Corp. and Residential Funding Corp. under a new holding company.
The move - long anticipated - came in early May, about a day before Standard & Poor's cut the credit ratings of General Motors Acceptance Corp. to "junk/speculative grade" status due to financial woes of its automotive corporate parent.
As part of the restructuring, GMAC contributed $2 billion in equity into the new holding company, which is called Residential Capital Corp. or "ResCap." (GMAC also named industry veteran Thomas Jacob to ResCap's board. Mr. Jacob is the retired chairman and CEO of Chase Manhattan Mortgage Corp., Edison, N.J.)
A spokeswoman for GMAC's parent company, General Motors, said the $2 billion is a "reduction in debt" for ResCap and does not represent a cash outflow from GMAC.
The restructuring of GMAC Mortgage and RFC in no way includes GMAC Commercial Mortgage of Horsham, Pa., the nation's largest commercial mortgage banking firm.
As reported, Lewis S. Ranieri, the "father" of the mortgage-backed security, and partners that include Kohlberg Kravis Roberts and Goldman Sachs, have been granted exclusive negotiating rights to buy a majority stake in GMACCM.
As Mortgage Servicing News went to press, the GM spokeswoman said negotiations regarding GMACCM were "ongoing."
Now that ResCap is operative, it will seek a standalone credit rating. Its goal is to insulate the mortgage units from the automaker parent whose debt now trades at junk bond levels.
ResCap's goal, said officials familiar with the matter, is to achieve a higher credit rating than GM. The better the credit rating for ResCap the cheaper it can borrow money in the capital markets.
At the end of the first quarter, GMAC Mortgage ranked seventh among residential servicers with $244 billion in receivables. Its affiliate, Homecomings/RFC, ranked 13th with $85 billion.
In 2004, RFC earned $624 million, GMAC Mortgage $275 million and GMACCM $204 million.
The automaker anticipates similar earnings this year for its mortgage holdings.
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