Page last updated at 16:53 GMT, Wednesday, 5 November 2008

GMAC warns on mortgage business

GMAC's Rescap mortgage arm has now seen two years of losses

GMAC Financial Services has reported an increased loss for the third quarter and warned that its mortgage business, Rescap, may struggle to survive.

The firm reported a loss of $2.52bn (1.56bn), against a $1.6bn deficit a year ago, with Rescap losing $1.91bn.

"Absent economic support from GMAC, substantial doubt exists regarding ResCap's ability to continue as a going concern," GMAC said.

GMAC was part of General Motors until GM sold a majority stake in 2006.

It sold a 51% stake in GMAC to Cerberus Capital Management, but the carmaker still holds a 49% share.

Rescap was reported to be the seventh-largest mortgage lender in the US at the beginning of this year.

Analysts suggested it could follow lenders Washington Mutual and IndyMac who failed earlier this year.

"If GMAC can't provide the support that Rescap needs, then bankruptcy is an option for Rescap," said analyst Christopher Wolfe from Fitch Ratings.

'Unrelenting environment'

GMAC has been hard hit by the US housing slump and the resulting credit crunch.

The company's chief executive, Alvaro de Molina, said that "economic and market conditions created an unrelenting environment for our business".

"In this climate, our primary objective is to make prudent use of our resources and take the steps needed to address the reduced access to liquidity."

The company's car finance unit lost $294m in the three months to September, stemming from a rise in credit losses in North and Latin America. In the same period a year ago it had made a $554m profit.

GMAC has cut back its lending, and this has had an unwelcome knock-on effect on General Motors.

Earlier this week, GM said that the cutback in GMAC's lending was behind about half of the 45% fall in car sales seen during October.

"It was like someone turned off the lights," GM's North America sales chief Mark LaNeve said on Monday.

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