From this week’s Bloomberg Financial News Service comes this report -- GMAC LLC and its Residential Capital LLC home loan unit plan to dismiss 5,000 employees, or 60 percent of the unit's staff, and close all 200 GMAC Mortgage retail offices because of weak real estate markets.
The first 3,000 job cuts will cost $90 million to $120 million, mostly during the third quarter, with more expenses later, according to a statement today from the Detroit-based lender. Loans originated by outside brokers through Minneapolis- based ResCap's Homecomings unit will cease, business lending will be curtailed and parts of the company may be sold.
The cuts renewed doubt about GMAC's effort to rescue ResCap, ranked eighth among U.S. mortgage companies last year and 12th in subprime home loans for 2006, according to trade journal Inside Mortgage Finance. GMAC lost $5.4 billion over the past year, and ResCap's losses in the last seven quarters total $7.2 billion. GMAC arranged a $60 billion refinancing in June to keep ResCap from bankruptcy.
``This company is in really rough shape,'' said Sean Egan, president of Egan-Jones Ratings Co., a Haverford, Pennsylvania- based credit-rating company. ``There are no obvious avenues for support. The amount of support they need is quite substantial.''
GMAC is 51 percent controlled by Cerberus Capital Management LP, with the rest held by former parent General Motors Corp. GM last month reported the third-biggest loss in its 100-year history on plunging sales of pickups and sport-utility vehicles, and GMAC remains the primary source of funds for the automaker's dealers.
GMAC doesn't have any comments beyond its previous statements about its liquidity, spokeswoman Gina Proia said. Today's actions don't reflect an inability to meet terms of the June agreement, she said.
``They are a reflection of the market environment we are in,'' she said. ``We're streamlining and refocusing our resources on parts of the business that have a more compelling business model. Unfortunately, that includes a good deal of right- sizing.''
Retail loan officers will be leaving their jobs over the next two weeks while the company fulfills its loan commitments to existing borrowers, spokeswoman Jeannine Bruin said. About 2,000 jobs are expected to be eliminated as the company divests its GMAC home services business, including the real estate brokerage unit.
So, if you have a GMAC mortgage pre-approval, I’d advise finding another source and if your real estate agent works for GMAC Real Estate, you might want to shop around for someone else, too. This is just the latest in a series of downsizings and “right sizings” going on in the real estate and mortgage industries.
Like GMAC, whole companies, with many franchise or wholly owned offices have gone under in the current bad market. Fortunately, Real Estate One has the financial wherewithal to ride out this market; but even we have had to take measures to cut costs where we can, without affecting customer services. So, call me, if you were with GMAC and now need to find a more stable company to deal with. And call Agnes Miesch, my John Adams Mortgage rep at (248)535-5566, if you’ve been left high and dry by this announcement and need a new mortgage source. Tell her that Norm sent you.