Saturday, March 10, 2007

GM may owe $1B on mortgage loans

Wednesday, March 07, 2007
GM may owe $1B on mortgage loans
Automaker might have to cover defaulted home loans made by unit of ex-finance arm, GMAC.
Sharon Terlep / The Detroit News

First, General Motors Corp. delayed releasing its much-anticipated financial results for 2006.

Then, the automaker missed the March 1 filing deadline with the Securities and Exchange Commission, requesting an extension to next week.

Now, risky mortgage loans doled out last year by GM's former finance arm are giving Wall Street another reason to be anxious.

GM may be on the hook for as much as $1 billion to cover defaulted mortgage loans made to high-risk borrowers by Residential Capital LLC, the former home-lending unit of General Motors Acceptance Corp., several analysts said this week. The automaker sold a 51 percent stake in GMAC last year for $14.4 billion to a group led by Cerberus Capital Management LP.

A GM spokeswoman declined to comment Tuesday, saying that GM hasn't yet seen GMAC's 2006 financial report.

"People are definitely getting frustrated," said analyst Brad Rubin at investment firm BNP Paribas.

Rubin said GM, which has about $46 billion in liquidity, can safely handle a $1 billion payout. But the company's financial issues are stressing investors. Yet, he said, "I don't think that's going to impact the restructuring or whether GM survives or not."

The automaker, which has restated its results seven times in the past two years, last month requested an extension of the March 1 SEC deadline for 2006 financial results. GM initially planned to announce results on Jan. 30.

GMAC was a factor in the delay.

GM's exposure to the risky loans was one key concern of analyst New York-based Bear Stearns analyst Peter Nesvold. "Our biggest concern on the equity side is whether GM stock sufficiently discounts ResCap's subprime exposure," he wrote in a recent research note.

Subprime mortgages, with their higher interest rates, typically go to homeowners with troubled credit histories. Falling home prices are causing overextended homeowners to default on loans because it's more difficult for them to take out second mortgages or home equity loans for extra cash.

© Copyright 2007 The Detroit News. All rights reserved.


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