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GMAC Says Mortgage Unit Meeting 2007 Obligations

Reuters
Thursday, 17 Jan 2008 | 2:50 PM ET

U.S. finance company GMAC said it expects its money-losing Residential Capital mortgage unit will have met the financial covenants in its loan agreements at the end of 2007, and thus not risk possible default.

In a U.S. Securities and Exchange Commission filing, GMAC also said it expects to be profitable in 2008 as "substantially reduced'' losses at ResCap and good performance in insurance offset "delinquency headwinds'' in auto finance operations.

GMAC, partially owned by General Motors, also said it believes it is "adequately capitalized,'' has liquidity that is at "relatively high historical levels,'' and needs no further capital injections for 2007.

In the July-to-September quarter, ResCap lost $2.26 billion, contributing to a $1.6 billion loss for GMAC.

ResCap is the second-largest independent U.S. mortgage lender, after Countrywide Financial , and the nation's eighth-largest mortgage lender overall, according to the newsletter Inside Mortgage Finance. Countrywide agreed last week to be acquired for $4 billion by Bank of America.

Like many rivals, ResCap has been hurt by rising defaults and tighter credit markets as the U.S. housing crisis deepened, and stopped making many riskier home loans. Last year, it set plans to cut 5,000 jobs.

"GMAC's core auto finance business remains generally stable, although funding costs are starting to reflect the pressure of the credit crunch generally and ResCap's weakness specifically,'' wrote Kathleen Shanley, an analyst at independent research firm Gimme Credit. "The company will be challenged to maintain its own credit quality while at the same time lending support to ResCap.''

GM owns 49 percent of GMAC. A group led by private equity firm Cerberus Capital Management owns 51 percent.

GMAC, based in Detroit, said in November it may sell part of Minneapolis-based ResCap.

ResCap's 7.875 percent notes maturing in 2015 rose 2.1 cents on the dollar to 59 cents, yielding 16.7 percent, according to Trace, the Financial Industry Regulatory Authority bond pricing service. Some investors consider that level ''distressed.''

GMAC's 8 percent bonds maturing in 2031 fell 0.4 cents to 77.6 cents, yielding 10.59 percent, Trace said.

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