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GMAC second quarter profit tumbles as mortgage unit suffers losses

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NEW YORK (AP) _ GMAC Financial Services, the finance company formerly controlled by General Motors Corp., said Monday continued losses from its home lending operations caused second-quarter profits to fall sharply.

The New York-based company reported a profit of US$293 million, compared with $787 million in the same period last year. Revenue fell to $4.02 billion from $5 billion in the year-ago period.

GMAC blamed the drop on losses in its Residential Capital LLC home lending unit, more commonly known as ResCap. The unit lost $254 million during the second quarter, compared with a loss of $910 million a year earlier.

Eric Feldstein, GMAC's chief executive, said the company made great strides during the first half of 2007 to stem losses from the troubled residential mortgage unit. GMAC's exposure to the subprime mortgage market caused the company to post a $305 million net loss during this year's first quarter.

``The net losses incurred by ResCap continue to constrain GMAC's bottom-line profitability,'' he said in a statement. ``But we are encouraged to see that the aggressive risk-mitigation initiatives implemented in the first half of this year have reduced ResCap's losses _ quickly and significantly _ despite increasing challenges in the U.S. mortgage market.''

In November 2006, GM sold a 51 per cent controlling interest in GMAC to a consortium of investors led by Cerberus Capital Management LP. The automaker maintains a 49 per cent stake.

GMAC said its prospects in the long-term ``remain favourable.'' It expects continued improvement in earnings performance at its mortgage-lending unit during the second half of the year.

The company said it continues to reduce its exposure to subprime mortgages, and will restrict origination of those that have ``limited market liquidity.''

At the end of the second quarter, ResCap's U.S. nonprime held-for-sale portfolio was reduced to $1.9 billion from $3.1 billion at the end of March, and from $5.4 billion at year-end 2006.

Stripping out losses from the Residential Capital unit, second-quarter profit would have been $547 million _ more than double the year-ago period for the same operations.

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GMAC second quarter profit tumbles as mortgage unit suffers losses
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