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| General Motors has completed the restructuring of its residential mortgage operations in an effort to improve the unit’s cost of funds and liquidity.
Ownership of GMAC Mortgage Corp. and Residential Funding Corp. was transferred to Residential Capital Corp. from General Motors Acceptance Corp., according to an announcement today. Residential Capital, which was recently created as a holding company, is seeking a stand-alone credit rating and was infused with $2 billion of equity by GMAC to reduce its leverage ratio, the announcement said. Retired Chase Manhattan Mortgage Corp. chairman and CEO Thomas Jacob was elected to Residential Capital’s board of directors, GMAC announced, as well as Thomas Melzer, co-founder and managing director of RiverVest Venture Partners. “The restructuring, separate capital structure, independent directors and other corporate governance arrangements are intended to facilitate enhanced liquidity and cost effectiveness of the financing of (Residential Captial’s) mortgage operations,” the company said in the announcement. “With separate liquidity and funding of (Residential Captial), GMAC also benefits through reduced funding requirements for its residential mortgage operations.” A previous announcement noted it was GMAC’s intent that the restructuring be designed to avoid any adverse effect on holders of GMAC debt. The automaker recently announced a first quarter loss of $839 million — citing “clearly disappointing” results at GM North America. The behemoth said, “Given the uncertainty affecting key elements of our financial forecast, such as resolution of the health-care cost crisis, GM has determined that it will not provide earnings guidance for the 2005-calendar year at this time.” GMAC said it has no intention of divesting the residential mortgage unit. Billionaire Kirk Kerkorian has offered through his company Tracinda Corp. to buy 28 million shares of parent GM — which would make him the third largest shareholder, according to published reports. Thursday afternoon, Standard & Poor’s announced it cut GM’s bond rating to junk status, reflecting “our conclusion that management’s strategies may be ineffective in addressing GM’s competitive disadvantages.” S&P cited the profitability of sports utility vehicles. News of the ratings action sent shares of GM tumbling more than 5%. |
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Sam Garcia has been in mortgage lending since 1980, and is publisher of MortgageDaily.com and MortgageChronicle.com. email:Â SamGarcia@MortgageDaily.com |
