GMAC Financial Services said Wednesday it will cut
about 3,000 jobs, or 25 per cent of the workforce at its Residential
Capital LLC mortgage operation.
The financial services company, partly owned by auto giant
General Motors Corp. (NYSE:GM), blamed the cuts on ``sharp downturns
in the U.S. residential real estate markets and the global
dislocation of the mortgage finance and credit markets.''
ResCap employs about 12,000 people after cutting 2,000 jobs
earlier this year.
The company said the largest job cuts would happen in business
units most affected by the drop-off in mortgage originations.
Spokeswoman Gina Proia said approximately 460 jobs would be
eliminated in Minneapolis, where ResCap is based and employs 1,550
people. That would be the largest job loss in any one city. She also
said about 180 jobs would be eliminated in Horsham, Pa.
ResCap said it would incur restructuring charges between $90
million and $110 million. That includes severance costs of $55
million to $65 million and costs for closing facilities of $35
million to $45 million.
Most of the charges will happen in its fourth quarter.
Troubles in the subprime mortgage market have hurt GMAC. In July
it said second-quarter profits fell 63 percent, primarily because of
ResCap losses of $254 million.
ResCap said the restructuring of its cost structure will make it
more flexible, allowing it to grow or shrink depending on what
happens in the loan market.
Subprime borrowers have had trouble making their payments, and
stagnant or falling home prices have made it harder for them to
refinance. That has made investors wary of buying the loans from
originators like ResCap, squeezing the finances of GMAC and other
GMAC said in July that ResCap issued just $700 million in
non-prime mortgages during the second quarter, versus $6 billion a
``ResCap will continue to modify its product offerings based on
market conditions, and has sharply reduced its exposure to nonprime
and prime non-conforming loans this year,'' it said in a statement
However, it did not say it is halting subprime lending.
``We have not said explicitly that we're getting out of any piece
of this business,'' Proia said. ``We did restrict our
underwriting,'' she said, and the company is ``trying to align what
we originate based on what the market appetite is.''
GMAC was formerly wholly owned by General Motors and carried out
auto financing operations ffor the giant auto maker.
Cerberus Capital Management LP and other private-equity firms
bought a 51 per cent stake in GMAC in November, before weakness in
the mortgage industry became widely known. GM maintains a 49 per