Treasury to give GMAC $3.8B for bad mortgages

Detroit Free Press

WASHINGTON — The U.S. Treasury said Wednesday that it will inject an additional $3.8 billion into troubled lender GMAC, part of a deal that will boost the federal government’s stake to 56 percent and attempt to staunch the company’s losses from bad mortgages.

All of the money injected by the Treasury will essentially go to shoring up GMAC’s ResCap unit, the arm best known for ditech.com and other housing-boom related mortgage offers that crashed as housing prices withered over the last couple of years. GMAC said the move, along with a $3.3 billion write-down in mortgages at ResCap and Ally Bank, should allow it to explore a sale or other action for ResCap.

“By protecting the financial performance and strength of our core automotive finance operations, we expect to increase the pace at which we can fully repay the U.S. taxpayer,” said GMAC Chief Executive Officer Michael A. Carpenter.

The money comes on top of $12.5 billion that the U.S. Treasury had previously invested in GMAC to keep it afloat as the lender of choice for car buyers and dealers at General Motors and Chrysler.

The U.S. Treasury said in a statement that under the new deal it would appoint four of GMAC’s nine board members, up from two now. The new directors would be chosen before GMAC’s annual meeting in April.

In May, Treasury officials had estimated that GMAC might need an additional $5.6 billion, but the final amount was reduced due to lower-than-expected losses in the auto finance business from the bankruptcies of GM and Chrysler.

The former finance arm of GM was spun off by GM Chairman and Chief Executive Rick Wagoner in 2006 as the automaker sought ways to raise cash. But the ResCap mortgage business soon suffered from unsustainable losses.