GMAC Financial Services today reported a huge third quarter loss while noting that the future of its ailing real estate finance unit Residential Capital held serious doubts.
The company reported a net loss of $2.5 billion, compared to a net loss of $1.6 billion a year earlier, driven largely by a $1.9 billion loss at ResCap, which experienced higher credit-related provisions and soft revenue.
Mortgage loan origination volume fell to just $11.9 billion during the quarter, down from $29.3 billion a year earlier as non-conforming and nonprime lending came to a standstill.
“While prime conforming loan production decreased year-over-year with $6.8 billion in the third quarter of 2008 versus $12.2 billion in the year-ago period, production of higher-margin government loans increased to $4.1 billion this quarter compared to $1.4 billion in the third quarter of 2007,” the company said in a statement.
Over the past few months, ResCap has halted wholesale loan production via its Homecomings Financial lending channel, closed all its GMAC Mortgage retail offices, and stopped virtually all production outside the United States.
GMAC has continued to work to buoy ResCap, forgiving nearly $200 million in mortgage debt during the third quarter to keep the unit compliant with its tangible net worth covenant, though it may all be in vain.
“Adverse market conditions have made it difficult for ResCap to maintain adequate capital and liquidity levels,” the company warned. “As a result, absent economic support from GMAC, substantial doubt exists regarding ResCap’s ability to continue as a going concern.”
ResCap includes a number of notable brands, including retail mortgage lender Ditech.