Fed's OK Improves GMACFS's Funding Options

GMAC Financial Services has received Federal Reserve Board approval to become a bank holding company, providing the struggling auto and mortgage lender with access to new funding sources and a possible capital infusion from the Treasury Department. "Today's announcement marks a turning point in GMAC's history," said GMAC chief executive Alvaro de Molina. "As a bank holding company, GMAC will be competitively positioned for the long-term to provide financing to auto and mortgage consumers and businesses, such as automotive dealers." The approval order requires General Motors Corp. and Cerberus Capital Corp. to substantially reduce their equity interests in GMAC. It also requires the conversion of GMAC Bank to a state-chartered bank, which was approved by the Utah banking department. BHC status will allow GMAC to reduce its borrowing costs and ease the burden on its mortgage lending and servicing arm, Residential Capital, which is making principal and interest advances on an increasing number of delinquent loans. ResCap services nearly $400 billion in mortgages. GMAC has applied for a capital infusion under the Troubled Asset Relief Program. Treasury has already committed to provide $250 billion in capital assistance to banking companies.