GMAC unit to close offices, cut 5,000 jobs

GMAC Financial Services subsidiary Residential Capital L.L.C., of Fort Washington, said yesterday that the housing slump was forcing it to eliminate 5,000 jobs in its mortgage operations.

The cuts - starting tomorrow with loan officers in GMAC Mortgage branches - will hit 60 percent of the lender's workforce, including 168 in the Philadelphia region, where Residential Capital will continue employing 1,408, spokeswoman Jeannine Bruin said.

"While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment," the company's chairman and chief executive officer, Tom Marano, said in a news release.

Marano, former global head of mortgage and asset-backed securities at the Bear Stearns Cos. Inc., was not available to comment further on the major restructuring, which followed an 18-month period in which ResCap lost $7.1 billion. The company's official headquarters is in Minneapolis, but Marano and other top executives work out of Fort Washington.

The cutbacks are "not a surprise," said Guy Cecala, publisher of Inside Mortgage Finance in Bethesda, Md. "The mortgage industry has known for the last year that ResCap has been pretty much running on fumes. It's constantly in need of support from GM and Cerberus," its owners.

Cecala said ResCap remained a significant player in the mortgage industry, with $35.73 billion in mortgages in the first six months of this year. That ranked seventh in the nation.

ResCap's mortage production in the second quarter fell 37 percent from the year before. By contrast, the nation's largest mortgage lender, Wells Fargo & Co., saw its mortgage-lending volume fall just 7 percent in the same period.

Standard & Poor's noted that the restructuring at ResCap, which was more heavily weighted toward subprime lending for its size than larger competitors, "effectively eliminates the infrastructure the company was maintaining for a time when the markets for nonprime loans returned."

The job cuts at ResCap will be swift, with 3,000 employees receiving pink slips this month, and an additional 2,000 expected to lose their jobs by the end of the year.

ResCap last year eliminated 5,000 jobs, including 270 in Cherry Hill, Fort Washington and Horsham. The latest cuts would reduce overall employment at ResCap to roughly 3,300, from 14,000 in early 2007.

Since the beginning of last year, financial companies have reported the elimination of 1,600 jobs in the Philadelphia region, based on notices to state departments of labor.

Some of ResCap's cuts will come from the closure of its 200 GMAC Mortgage retail offices. Locally, GMAC Mortgage has offices in Philadelphia, Marlton, Horsham, Wayne and Greenfield, Del.

Walter O'Haire, a senior analyst at consulting firm Celent L.L.C., said those branches were expensive to operate. "When you've got a lot of volume going through, that's fine, but as things slow down, you're going to want to maximize the most cost-efficient channel," he said.

Bruin said ResCap would keep lending, but most of it would be done through call centers. She also said ResCap would emphasize its business that collects mortgage payments for investors.

"We see great opportunity in servicing distressed assets of investors," Bruin said. Those investors include hedge funds that have bought mortgage-backed securities at a steep discount.

Companies with the most mortgages written in the first half of 2008. Two are local.*

Dollar volume

Lender In billions

Wells Fargo $133.7

Countrywide 132.0

JPMorgan Chase 116.4

Bank of America 74.8

Citigroup 72.7

Wachovia 37.9

GMAC Residential 35.7

Capital

Washington Mutual 30.5

SunTrust 21.6

PHH Mortgage 20.7

*GMAC Residential Capital is in Fort Washington; PHH is in Mount Laurel.

SOURCE: Inside Mortgage Finance

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