GMAC's Mortgage Unit May Not Survive

[Nov 6, 2008.]

The New York Times is reporting that GMAC's mortgage unit, Residential Capital, may not survive due to continued losses and limited access to capital.

Residential Captial needs additional economic support from it's parent, GMAC, in order to weather the storm. GMAC, however, needs to be careful in how it deploys its resources having just lost $2.52 billion in the third quarter.

“Economic and market conditions created an unrelenting environment for our business,” the chief executive of GMAC, Alvaro de Molina, said in a statement. “In this climate, our primary objective is to make prudent use of our resources and take the steps needed to address the reduced access to liquidity.”

This is not good news for those homeowners looking to refinance their mortgage. Residential Captial is certainly not the first mortgage lender this year to go under and will not be the last. As consumer lending options to refinance a home loan continue to disappear - so does competition amongst banks.

This will inevitably lead to fewer loan programs, higher interest rates, and tighter underwriting guidelines as the remaining lenders will be in a position to cherry pick their borrowers.

Borrowers that find themselves unable to obtain financing through traditional sources may need to explore using friends and family or private lenders. Both of these options come with their fair share of drawbacks.

Those with excellent credit and sufficient income and assets will continue to be pursued by the remaining players. Borrowers are still encouraged, even with a reduced product offering, to work with a loan officer that they trust to provide them with solid guidance on how their mortgage refinance should be structured.

Gone are the days of simply entering preliminary information on a website to be contacted within minutes by a host of lenders all willing to complete for your business. Now, you must first prove your worth as a borrower in order to get the best terms.

About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.

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