General Motors says it is considering selling a controlling stake in its financial services division GMAC, prompting rating agencies to place ResCap’s debt under its watch list.In June this year GMAC formed the Residential Capital Corporation, or ResCap, as a holding company sitting above its two residential mortgage businesses. GMAC transferred ownership of its Residential Funding Corporation, GMAC-RFC – the US and international business-to-business mortgage lender – and GMAC Mortgage Corporation – the US business-to-consumer mortgage lender – to ResCap. GM is thought to be considering selling the stake to help restore its investment grade rating and renew its access to low-cost funding. In a statement GM says it is “exploring the possible sale of a controlling interest” in its financial services division “to a strategic partner”. Rating agencies, taking note of GM’s financial woes are keeping a close watch on ResCap’s debt. US magazine Mortgage Servicing News reports that Fitch has placed a BBB- rating on ResCap’s senior debt and has placed the company on its watch list. The magazine says that with profit margins in mortgage banking coming under pressure, GMAC cannot afford to see its cost of funds increase dramatically. In a research note, rating agency Fitch says the sale of GMAC presents “unique challenges” because of its size. Mortgage operations earned a record US$408m in the third quarter of 2005, up from $266m in the third quarter of 2004. GMAC’s residential mortgage businesses benefited from increased sales of mortgages as well as certain investment securities.
- GMAC-RFC reported a record number of weekly applications last week. The rise in volumes is attributed to a combination of good service, the introduction of broker-friendly technology including the innovative cascade system, and competitive products.