New York-based financial services company GMAC reported a profit of $293 million, compared to $787 million in the same period last year.Revenue dropped significantly from $5 billion to $4.02 billion in the year-ago period.
GMAC cited losses from its mortgage lender Residential Capital LLC home lending unit, otherwise known as ResCap as the underlying problem, which includes brands such as Ditech Mortgage and Homecomings Financial.
ResCap lost $254 million in the second quarter, compared with a profit of $548 million a year earlier.
ResCap’s U.S. nonprime held-for-sale portfolio was reduced to $1.9 billion from $3.1 billion at the end of March, and from $5.4 billion at year-end 2006.
And GMAC continues to move away from the subprime market, noting that the company will steer away from originating loans with “limited market liquidity”.
In other words, subprime loan origination will be significantly reduced because Wall St. investors are no longer jumping at the opportunity to buy nonprime mortgage-backed securities.
ResCap cut nonprime mortgage production to $700 million during the second quarter, down from a whopping $6 billion a year ago.
GMAC noted that the long term sentiment for the company is still “favorable” as it expects to continue to pare losses and return the mortgage arm to profitability.
General Motors, who own a 49% stake in GMAC saw shares rise roughly 3.5% on the news in late-afternoon trading.