Another One Bites the Dust

Residential Capital, LLC, the legal name of the owner of GMAC’s residential mortgage company, announced the elimination of 5,000 jobs and the closing of 200 retail mortgage offices.  Concurrently the Wholesale operations arm of the company, Homecomings Financial, announced that it also would suspend operations. 

I am not surprised at this announcement as it has been widely speculated for months. But as a broker who used Homecomings, I am sorry to see this company exit the stage. They were a good lender.

So this amounts to a virtual capitulation by GMAC.  When first announced many years ago, GMAC's entry into the mortgage business was supposed to have been a nice offset to the cyclicality of the automobile finance business. For years it did provide stability to GMAC's earnings.

Often described as a cash-cow, GMAC seemed to be an attractive investment opportunity when financially troubled GM made a deal with Cerberus Capital to sell 51% of its subsidiary.  Obviously, Cerberus, which also owns Chrysler Corporation, would probably like to sell it back. For more information in Cerberus, see http://www.cerberuscapital.com/

This is nothing more than evidence of continuing problems in the residential housing market, no surprise there. Where will it end, no one knows.

This also does not bode well for the mortgage brokerage community. Bank of America, Washington Mutual, and now GMAC have all discontinued doing business with mortgage brokers. Of course there are fewer of them around too and maybe not all that many lenders are needed.

There has been no announcement of the fate of DiTech, the ResCap owned lender that is described by ex-employees as a sweatshop. It's hard to believe that this embarrassment to the industry could continue to exist when ResCap exits the more legitimate ways of generating mortgages.

Where is this headed? I shudder to think of the mortgage industry ratcheting down to the point where a bunch of poorly-trained, know-nothing kids working for a few gigantic mega-banks are doing all the mortgages in America! That will be a sad day for homebuyers.