Mortgage lender to cut staff 25%
Residential Capital, lending arm of former General Motors unit, cutting 3,000 workers in wake of subprime woes.
NEW YORK (CNNMoney.com) -- Residential Capital LLC, the home lending arm of the former General Motors finance unit GMAC, announced it is cutting 3,000 jobs, or 25 percent of its already reduced staff, in the latest fallout from the meltdown in mortgage markets.
ResCap, as it is known, said most of the cuts taking place will come during the fourth quarter. It anticipates taking a charge of between $90 million to $110 million to cover severance and office closings.
The company said the restructuring will allow it to scale operations up or down as the market changes.
The cuts come on top of 2,000 positions already reduced from a staff that stood at 14,000 at the start of the year.
"They've taken some pretty significant actions to date and we'll continue to adjust operations to be more in line with the current environment," said Gina Proia. "We continue to focus on turning the business around. We think ResCap will continue to be a significant player in the mortgage business."
The 12,000 current ResCap employees represent just less than 40 percent of GMAC's overall staff of 31,000.
It is one of the lenders that has greatly pulled back from the so-called non-conforming loans that can not be packaged and sold through mortgage finance firms such as Fannie Mae (Charts) and Freddie Mac (Charts, Fortune 500).
Non-conforming loans include subprime loans to borrowers with less than top credit ratings, so-called Alt-A loans to those without full documentation of income and jumbo loans of greater than $417,000.
Those three areas had been a significant part of its business earlier this year, but the company pulled back hard from the segment in the second quarter. The value of new nonprime loan originations was $685 million in the second quarter, according to the company's filings, down from $3.3 billion in the first three months of the year.
Trade publication Inside Mortgage Finance ranked ResCap as the nation's No. 3 Alt-A lender with $44 billion in such lending, putting it behind only IndyMac (Charts) and Countrywide Financial (Charts, Fortune 500).
The trade publication ranks ResCap as the No. 12 subprime lender in 2006, as it originated $21.2 billion in those loans. Leaders in that sector last year included HSBC (Charts), New Century Financial and Countrywide, but New Century filed for bankruptcy protection in April.
ResCap is not alone in cutting staff. Outplacement firm Challenger Gray & Christmas estimates that mortgage and subprime lending institutions have announced 70,000 job cuts this year through September.
The sales agreement was announced in early 2006, before the downturn in mortgage lending. Much of the motivation for the sale was to no longer have GMAC weighed down by the junk bond status that credit rating agencies had given to GM debt.
The mortgage lending business has been a significant problem for GMAC since the sale was closed. ResCap reported a loss of $910 million in the first quarter of 2007, compared to a profit of $201 million in the year-earlier period, as a rise in subprime and Alt-A delinquencies and defaults caused a sharp drop in securities backed by those mortgages.
In the second quarter it trimmed that loss to $254 million, but once again that was sharply worse than the $289 million profit it made a year earlier, not counting a gain in the earlier period from the sale of an equity investment in a homebuilder.