Report: GM could take $1B subprime hit

Automaker may be on the hook for home loans to borrowers with weak credit, paper says.

NEW YORK ( -- General Motors may owe as much as $1 billion to cover defaulted mortgage loans made to borrowers with less than top credit by its former home lending unit, according to a public report.

The Detroit News, citing estimates from several analysts, said that problems with loans made by units of GMAC such as Residential Capital could cause the automaker to make the payments. General Motors would not comment to the paper on the report.

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Rising delinquency rates and defaults on mortgages granted to borrowers who don't have top credit ratings, known in the industry as subprime mortgages, have been a rising concern of stock markets recently.

While most of the subprime loans are packaged together and sold as mortgage-backed securities, some holders of those securities are demanding and receiving payments from the original lenders for loans that quickly become delinquent or go into default.

So far most of the attention on problems in the subprime sector has not focused on GM's (Charts) exposure, though.

HSBC Holdings (Charts), the nation's largest subprime lender, took a $10.6 billion charge for bad debt in the United States, related primarily to its subprime loans, when it reported results Monday.

New Century Financial (Charts), the nation's No. 2 subprime mortgage lender, saw its shares plunge 69 percent Monday after it revealed that its outside auditor had questions about its ability to stay in business. The company also revealed that it is the subject of a Justice Department probe.

And Fremont General (Charts), the No. 6 subprime lender, saw shares fall by nearly a third Monday after it announced it would exit the subprime sector because of the demands of regulators and market conditions.

According to industry trade publication Inside B&C, a unit of GMAC's Residential Capital is the nation's No. 12 subprime mortgage lender, with subprime loans of $21.2 billion in 2006 and $25.3 billion in 2005. And some GM analysts are starting to focus more on the subprime exposure for the company.

"Our biggest concern on the equity side is whether GM stock sufficiently discounts ResCap's subprime exposure," wrote Bear Stearns analyst Peter Nesvold in a recent note to clients.

While GM sold 51 percent of GMAC, which also has auto financing and insurance arms, to a group of private equity firms led by Cerberus Capital in the fourth quarter, it still retains 49 percent and could be on the hook for bad loans made before the deal closed Nov. 30.

A delay in GMAC closing its books on the fourth quarter is one of the reasons that GM missed a March 1 deadline to report its own fourth-quarter results with the Securities and Exchange Commission.

The missed deadline has raised concerns on Wall Street about GM's results, which had been expected to produce earnings of $1.19 a share after a loss of $2.09 in the year-earlier period.

GM has said it expects to file its fourth-quarter earnings by a new March 16 deadline.

GM has problems far away from the field of mortgage finance, as it still is trying to trim costs and stem losses at its core North American auto operations.

Although it reported unexpectedly strong sales and gain in U.S. market share in February, its share in its home market is still down significantly from several years ago as Asian import brands such as Toyota Motor (Charts) and Honda Motor make gains.

Its executives are also in discussion about possibly buying rival Chrysler Group from DaimlerChrysler (Charts), which has put the unit up for sale due to losses at the North American automaker. But most analysts still believe a GM-Chrysler deal is unlikely.

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