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GMAC to reduce mortgage lending

September 04, 2008|From the Associated Press

Lender GMAC Financial Services said Wednesday that it would close all of its 200 retail offices and lay off about 5,000 employees as part of a plan to reduce its mortgage lending and servicing because of the housing market downturn.

The majority of the layoffs are slated for GMAC's mortgage lending division, Residential Capital, and will reduce the ResCap workforce by 60%, the company said.

In the first half of the year, ResCap's U.S. mortgage loan production was valued at about $35.7 billion, down nearly 39% from the same period in 2007. Yet it was still the seventh-largest mortgage originator, with a 3.9% market share, according to trade publication Inside Mortgage Finance.

"While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment," Tom Marano, ResCap's chairman and chief executive, said in a statement. "Conditions in the mortgage and credit markets have not abated and, therefore, we need to respond aggressively by further reducing both operating costs and business risk."

Some 3,000 employees may get their pink slips this month. The rest are expected to lose their jobs by the end of the year, the company said.

Richfield, Minn.-based ResCap is also the latest in a long list of lenders that have stopped using external, wholesale brokers to originate loans. Wachovia Corp. exited the wholesale mortgage lending business in July, for example, and rival Bank of America Corp. got out of the business several months ago.

ResCap will continue lending through brands such as or GMAC Mortgage Direct, which customers can reach online or through call centers, spokeswoman Jeannine Bruin said.

"We're not going to have a retail presence where customers walk in the door," Bruin said. But "we are very much still originating loans and servicing the customer."

To cover severance costs, ResCap will take a charge of $90 million to $120 million against earnings.

In July, GMAC said ResCap's second-quarter losses widened to $1.86 billion from $254 million a year earlier.

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