GM could owe 1-Billion to cover bad loans
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GM could owe 1-Billion to cover bad loans
GM could owe 1-Billion to cover bad loans.
http://money.cnn.com/2007/03/07/news...ion=2007030709
http://money.cnn.com/2007/03/07/news...ion=2007030709
Report: GM could take $1B subprime hit
Automaker may be on the hook for home loans to borrowers with weak credit, paper says.
March 7 2007: 9:13 AM EST
NEW YORK (CNNMoney.com) -- General Motors may owe as much as $1 billion to cover defaulted mortgage loans made to borrowers with less than top credit by its former home lending unit, according to a public report.
The Detroit News, citing estimates from several analysts, said that problems with loans made by units of GMAC such as Residential Capital could cause the automaker to make the payments. General Motors would not comment to the paper on the report.
Rising delinquency rates and defaults on mortgages granted to borrowers who don't have top credit ratings, known in the industry as subprime mortgages, have been a rising concern of stock markets recently.
While most of the subprime loans are packaged together and sold as mortgage-backed securities, some holders of those securities are demanding and receiving payments from the original lenders for loans that quickly become delinquent or go into default.
So far most of the attention on problems in the subprime sector has not focused on GM's (Charts) exposure, though.
HSBC Holdings (Charts), the nation's largest subprime lender, took a $10.6 billion charge for bad debt in the United States, related primarily to its subprime loans, when it reported results Monday.
New Century Financial (Charts), the nation's No. 2 subprime mortgage lender, saw its shares plunge 69 percent Monday after it revealed that its outside auditor had questions about its ability to stay in business. The company also revealed that it is the subject of a Justice Department probe.
And Fremont General (Charts), the No. 6 subprime lender, saw shares fall by nearly a third Monday after it announced it would exit the subprime sector because of the demands of regulators and market conditions.
According to industry trade publication Inside B&C, a unit of GMAC's Residential Capital is the nation's No. 12 subprime mortgage lender, with subprime loans of $21.2 billion in 2006 and $25.3 billion in 2005. And some GM analysts are starting to focus more on the subprime exposure for the company.
"Our biggest concern on the equity side is whether GM stock sufficiently discounts ResCap's subprime exposure," wrote Bear Stearns analyst Peter Nesvold in a recent note to clients.
While GM sold 51 percent of GMAC, which also has auto financing and insurance arms, to a group of private equity firms led by Cerberus Capital in the fourth quarter, it still retains 49 percent and could be on the hook for bad loans made before the deal closed Nov. 30.
A delay in GMAC closing its books on the fourth quarter is one of the reasons that GM missed a March 1 deadline to report its own fourth-quarter results with the Securities and Exchange Commission.
The missed deadline has raised concerns on Wall Street about GM's results, which had been expected to produce earnings of $1.19 a share after a loss of $2.09 in the year-earlier period.
GM has said it expects to file its fourth-quarter earnings by a new March 16 deadline.
GM has problems far away from the field of mortgage finance, as it still is trying to trim costs and stem losses at its core North American auto operations.
Although it reported unexpectedly strong sales and gain in U.S. market share in February, its share in its home market is still down significantly from several years ago as Asian import brands such as Toyota Motor (Charts) and Honda Motor make gains.
Its executives are also in discussion about possibly buying rival Chrysler Group from DaimlerChrysler (Charts), which has put the unit up for sale due to losses at the North American automaker. But most analysts still believe a GM-Chrysler deal is unlikely.
Automaker may be on the hook for home loans to borrowers with weak credit, paper says.
March 7 2007: 9:13 AM EST
NEW YORK (CNNMoney.com) -- General Motors may owe as much as $1 billion to cover defaulted mortgage loans made to borrowers with less than top credit by its former home lending unit, according to a public report.
The Detroit News, citing estimates from several analysts, said that problems with loans made by units of GMAC such as Residential Capital could cause the automaker to make the payments. General Motors would not comment to the paper on the report.
Rising delinquency rates and defaults on mortgages granted to borrowers who don't have top credit ratings, known in the industry as subprime mortgages, have been a rising concern of stock markets recently.
While most of the subprime loans are packaged together and sold as mortgage-backed securities, some holders of those securities are demanding and receiving payments from the original lenders for loans that quickly become delinquent or go into default.
So far most of the attention on problems in the subprime sector has not focused on GM's (Charts) exposure, though.
HSBC Holdings (Charts), the nation's largest subprime lender, took a $10.6 billion charge for bad debt in the United States, related primarily to its subprime loans, when it reported results Monday.
New Century Financial (Charts), the nation's No. 2 subprime mortgage lender, saw its shares plunge 69 percent Monday after it revealed that its outside auditor had questions about its ability to stay in business. The company also revealed that it is the subject of a Justice Department probe.
And Fremont General (Charts), the No. 6 subprime lender, saw shares fall by nearly a third Monday after it announced it would exit the subprime sector because of the demands of regulators and market conditions.
According to industry trade publication Inside B&C, a unit of GMAC's Residential Capital is the nation's No. 12 subprime mortgage lender, with subprime loans of $21.2 billion in 2006 and $25.3 billion in 2005. And some GM analysts are starting to focus more on the subprime exposure for the company.
"Our biggest concern on the equity side is whether GM stock sufficiently discounts ResCap's subprime exposure," wrote Bear Stearns analyst Peter Nesvold in a recent note to clients.
While GM sold 51 percent of GMAC, which also has auto financing and insurance arms, to a group of private equity firms led by Cerberus Capital in the fourth quarter, it still retains 49 percent and could be on the hook for bad loans made before the deal closed Nov. 30.
A delay in GMAC closing its books on the fourth quarter is one of the reasons that GM missed a March 1 deadline to report its own fourth-quarter results with the Securities and Exchange Commission.
The missed deadline has raised concerns on Wall Street about GM's results, which had been expected to produce earnings of $1.19 a share after a loss of $2.09 in the year-earlier period.
GM has said it expects to file its fourth-quarter earnings by a new March 16 deadline.
GM has problems far away from the field of mortgage finance, as it still is trying to trim costs and stem losses at its core North American auto operations.
Although it reported unexpectedly strong sales and gain in U.S. market share in February, its share in its home market is still down significantly from several years ago as Asian import brands such as Toyota Motor (Charts) and Honda Motor make gains.
Its executives are also in discussion about possibly buying rival Chrysler Group from DaimlerChrysler (Charts), which has put the unit up for sale due to losses at the North American automaker. But most analysts still believe a GM-Chrysler deal is unlikely.
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From: Coppell, Texas
I work for one of the subprime brands for GMAC ResCap. They've cut our bonuses and laid off a bunch of people (myself included). None of the subprime lenders should be surprised at the shape that the market is in. They should have prepared for it better than they had. The down turn of the economy was well documented and shouldn't come as a shock to any of the big wigs. The feeling I get is that we were basically caught with our pants down.
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Yeah, the whole wholesale mortgage industry is taking a beating. Just today everyone dropped their 100% stated programs. I got this in an email a while ago, this is all very recent and there's alot more to add to this list:
E-loan announced it will close their sub prime wholesale division
ResMAE listed for sale
Wachovia Corp.'s consolidation of its recently acquired wholesale lenders American Mortgage Network and World Savings operations will result in layoffs
Fieldstone announced that it's closing 5 west coast branches including its Arizona operations. Fieldstone Mortgage also has closed their Las Vegas branch.
Mortgage Lender Network (MLN) "stopped funding residential loans" on 12/29 (they didn't actually say they were closing) but they have closed.
HMIC closed its doors on Dec 20. As part of a $100 million cost reduction strategy, Sovereign Bancorp its owner exited the wholesale mortgage market.
Own it Mortgage - closed its doors
Sebring Mortgage closed its doors
Axis Mortgage closed its doors
Oak Street Mortgage closed its doors
Right Away Mortgage closed its doors
Secured Funding closed its doors
Loans 123 - Not taking any more business
Aegis Funding (sub-prime) closed its doors (Aegis Wholesale (Conforming and Alt-A) and Home Equity are still open) for now.
Option One (Owned by H&R Block, Owned by HSBC) - Is Up for Sale selling off its portfolio Meritage Sold to Lime Financial
Mandalay - Closed it Doors Southstar - AE's leaving (a good source stating company cannot meet payroll obligations)
Accredited - OC Regional office production at its lowest levels, rumors they may close by 1st qtr.
Saxon – Layoffs possible closure.
RFC - Layoffs
Decision One closed 6 regional centers. Division of Option One.
Bank of America Mortgage lay off 225 locally.
Countrywide Mortgage - Multiple layoffs. In talks with Bank of America about possible merger (CNN). Countrywide has also filed suit against 15 parties alleging that the company may have been tricked into lending as much as $40 million dollars (figures elsewhere say $80 million.) The defendants include eight individuals an appraiser, a property management company, and several mortgage and lending companies. According to The Wall Street Journal, another large lender, Argent Mortgage Company may also have been caught up in the scam. Some of the bad loans also appear to have been acquired by Fannie Mae.
Argent consolidated and let 1,000 people go. Currently for Sale Ameriquest laid off 3,800 and shut 229 retail branches after announcing a $325 million settlement with state's attorneys general for overcharging borrowers. THEY MAY NOT LAST TILL SPRING.
Washington Mutual - Continued layoffs. Wholesale reps offer 1 pt to realtors for referral of loans. (Cutting the throats of their Broker base! Not good for biz!)
WAMU also exited their correspondent business
Freedom……..???
Encore Credit – closed its doors
Acoustic Home Loans closed its doors due to a sudden increase in repurchases
Ampro, gone acquired by United Financial Corp.
Silver Trust - closed its doors
Freedom Mortgage - not doing 2nd TD's anymore.
ResMAE listed for sale
Wachovia Corp.'s consolidation of its recently acquired wholesale lenders American Mortgage Network and World Savings operations will result in layoffs
Fieldstone announced that it's closing 5 west coast branches including its Arizona operations. Fieldstone Mortgage also has closed their Las Vegas branch.
Mortgage Lender Network (MLN) "stopped funding residential loans" on 12/29 (they didn't actually say they were closing) but they have closed.
HMIC closed its doors on Dec 20. As part of a $100 million cost reduction strategy, Sovereign Bancorp its owner exited the wholesale mortgage market.
Own it Mortgage - closed its doors
Sebring Mortgage closed its doors
Axis Mortgage closed its doors
Oak Street Mortgage closed its doors
Right Away Mortgage closed its doors
Secured Funding closed its doors
Loans 123 - Not taking any more business
Aegis Funding (sub-prime) closed its doors (Aegis Wholesale (Conforming and Alt-A) and Home Equity are still open) for now.
Option One (Owned by H&R Block, Owned by HSBC) - Is Up for Sale selling off its portfolio Meritage Sold to Lime Financial
Mandalay - Closed it Doors Southstar - AE's leaving (a good source stating company cannot meet payroll obligations)
Accredited - OC Regional office production at its lowest levels, rumors they may close by 1st qtr.
Saxon – Layoffs possible closure.
RFC - Layoffs
Decision One closed 6 regional centers. Division of Option One.
Bank of America Mortgage lay off 225 locally.
Countrywide Mortgage - Multiple layoffs. In talks with Bank of America about possible merger (CNN). Countrywide has also filed suit against 15 parties alleging that the company may have been tricked into lending as much as $40 million dollars (figures elsewhere say $80 million.) The defendants include eight individuals an appraiser, a property management company, and several mortgage and lending companies. According to The Wall Street Journal, another large lender, Argent Mortgage Company may also have been caught up in the scam. Some of the bad loans also appear to have been acquired by Fannie Mae.
Argent consolidated and let 1,000 people go. Currently for Sale Ameriquest laid off 3,800 and shut 229 retail branches after announcing a $325 million settlement with state's attorneys general for overcharging borrowers. THEY MAY NOT LAST TILL SPRING.
Washington Mutual - Continued layoffs. Wholesale reps offer 1 pt to realtors for referral of loans. (Cutting the throats of their Broker base! Not good for biz!)
WAMU also exited their correspondent business
Freedom……..???
Encore Credit – closed its doors
Acoustic Home Loans closed its doors due to a sudden increase in repurchases
Ampro, gone acquired by United Financial Corp.
Silver Trust - closed its doors
Freedom Mortgage - not doing 2nd TD's anymore.
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It's kind of like closing the barn doors after all the animals have already left.
There's still 8 million individual adjustable home loans that are scheduled to reset in 2007 that haven't even been factored in yet.
There's still 8 million individual adjustable home loans that are scheduled to reset in 2007 that haven't even been factored in yet.
Last edited by johnsocal; Mar 8, 2007 at 01:52 AM.
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Joined: Dec 1969
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From: Southern California (SoCal)
http://www.chron.com/disp/story.mpl/ap/fn/4609418.html
GM CEO: Subprime Loans Have Hurt GMAC
© 2007 The Associated Press
TOOLS
GENEVA — General Motors Corp. Chief Executive Rick Wagoner on Wednesday acknowledged that loans to high-risk borrowers have hurt the auto maker's former financing unit, GMAC Financial Services.
The slowing housing market has led to an increase in the number of defaults on high-risk or subprime loans, an area where GMAC's Residential Capital LLC, or ResCap, does business.
"Rescap is in the subprime business and that area is under stress, so it obviously has an effect on GMAC," Wagoner said in an interview at the Geneva auto show.
He declined further comment, saying, "We'll have much more to say when we close the books" for 2006.
Rescap held $57 billion of subprime mortgages for investment at the end of the third quarter. That accounts for 77 percent of its total loans held for investment. ResCap is also one of the biggest providers of short-term warehouse funding to smaller mortgage lenders, some of which have filed for bankruptcy as the subprime mortgage industry deteriorates.
GM last year sold a 51 percent stake in GMAC to Cerberus Capital Management LLC initially for $14 billion. A final value for GMAC is being negotiated to take into account the downturn in Rescap's business.
GM has twice had to delay filing its 10-K financial statements that outline its earnings for the fourth quarter and 2006. Wagoner said the delay in part stems from the GMAC deal, which closed in November.
"These are big complex businesses and when you do transactions at the end of the year it adds additional complexity," Wagoner said.
Detroit-based GM also plans to restate financial reports over several years because of accounting issues related to certain tax matters.
© 2007 The Associated Press
TOOLS
GENEVA — General Motors Corp. Chief Executive Rick Wagoner on Wednesday acknowledged that loans to high-risk borrowers have hurt the auto maker's former financing unit, GMAC Financial Services.
The slowing housing market has led to an increase in the number of defaults on high-risk or subprime loans, an area where GMAC's Residential Capital LLC, or ResCap, does business.
"Rescap is in the subprime business and that area is under stress, so it obviously has an effect on GMAC," Wagoner said in an interview at the Geneva auto show.
He declined further comment, saying, "We'll have much more to say when we close the books" for 2006.
Rescap held $57 billion of subprime mortgages for investment at the end of the third quarter. That accounts for 77 percent of its total loans held for investment. ResCap is also one of the biggest providers of short-term warehouse funding to smaller mortgage lenders, some of which have filed for bankruptcy as the subprime mortgage industry deteriorates.
GM last year sold a 51 percent stake in GMAC to Cerberus Capital Management LLC initially for $14 billion. A final value for GMAC is being negotiated to take into account the downturn in Rescap's business.
GM has twice had to delay filing its 10-K financial statements that outline its earnings for the fourth quarter and 2006. Wagoner said the delay in part stems from the GMAC deal, which closed in November.
"These are big complex businesses and when you do transactions at the end of the year it adds additional complexity," Wagoner said.
Detroit-based GM also plans to restate financial reports over several years because of accounting issues related to certain tax matters.
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When you could make 30k and get a 225k ARM Interest only loan approved; you reap what you sow (or something like that).
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Agreed. I don't buy into the "we're going into a big recession talk" due to the Housing Industry tanking. I think it's just leveling out, it was WAY OUT OF HAND!
When you could make 30k and get a 225k ARM Interest only loan approved; you reap what you sow (or something like that).
When you could make 30k and get a 225k ARM Interest only loan approved; you reap what you sow (or something like that).
Since this slow moving train wreck is taking a while to reveal the damage it's made, many start to get bored of hearing about it and/or decide it's not really a wreck at all.
The funny thing when I hear that it's "Just leveling out' it reminds me of analysts during the dot.com bust who were saying that technology stocks were just 'leveling out' to more realistic levels and their declines wouldn't spill over into the rest of the non-tech economy. The rest you know, is history
Last edited by johnsocal; Mar 8, 2007 at 03:08 PM.
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Agreed. I don't buy into the "we're going into a big recession talk" due to the Housing Industry tanking. I think it's just leveling out, it was WAY OUT OF HAND!
When you could make 30k and get a 225k ARM Interest only loan approved; you reap what you sow (or something like that).
When you could make 30k and get a 225k ARM Interest only loan approved; you reap what you sow (or something like that).
Exactly. The division of GMAC ResCap that I work at doesn't originate loans, but we sure as hell bought up a ton of POA's. One of the big wigs said during a conference that they were going to try to lobby the feds to NOT put restrictions on POA type products. I think there definetly is a market for sub prime mortgages, but you have to be somewhat smart about it.
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From: Coppell, Texas
I agree, it shouldn't have come as a surprise to anyone, but the language I hear at work coming down from the top makes it sound like this. I'm paraphrasing here but the words like, "unexpected downturn", "slow to adjust to changing industry climate" etc.
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Posts: 750
From: Alton IL
Agreed. I don't buy into the "we're going into a big recession talk" due to the Housing Industry tanking. I think it's just leveling out, it was WAY OUT OF HAND!
When you could make 30k and get a 225k ARM Interest only loan approved; you reap what you sow (or something like that).
When you could make 30k and get a 225k ARM Interest only loan approved; you reap what you sow (or something like that).
Im ok with my small, 1 1/2 bath, 3 bedroom house. People just got in over thier heads. Same thing they have been doing with credit cards over the last 20 years are so. I can see a lot of houses getting repod over the next few years. Qualified buyers been on the look out.
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Wow, Option One just announced that they aren't doing any 100% loans anymore, not even full doc. Apparently they've got more business than they know what to do with because of all the other companies leaving the market.
Edit: Longbeach just dropped out of the 100% market too and they're an OG.
Edit: Longbeach just dropped out of the 100% market too and they're an OG.
Last edited by slt; Mar 8, 2007 at 05:10 PM.
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Wow, Option One just announced that they aren't doing any 100% loans anymore, not even full doc. Apparently they've got more business than they know what to do with because of all the other companies leaving the market.
Edit: Longbeach just dropped out of the 100% market too and they're an OG.
Edit: Longbeach just dropped out of the 100% market too and they're an OG.
All these bad loans will cause banks to tighten standards (even on those who have great credit) and force the FED to cut rates later this year in their attempt to slow the bleeding.
Subprime lenders make loans to people with poor credit histories and have suffered from rising defaults. More than 20 have quit lending or gone bankrupt in the past year.
New Century a week ago disclosed a federal criminal probe into its accounting and trading in its securities and said its survival might depend on help from its own lenders. It faces many shareholder lawsuits.
New Century a week ago disclosed a federal criminal probe into its accounting and trading in its securities and said its survival might depend on help from its own lenders. It faces many shareholder lawsuits.
http://money.cnn.com/2007/03/09/news...ion=2007030916
Last edited by johnsocal; Mar 9, 2007 at 06:17 PM.