GMAC Posts $2.5 Billion Q3 Loss

Detroit, MI (AHN) - GMAC Financial Services announced Wednesday a third quarter loss of $2.52 billion as the company's ResCap mortgage lending division weighed heavily on results.

The third quarter loss is larger than the $1.6 billion loss the finance firm reported in the same period a year ago.

The credit crunch took a toll on revenue, down 24 percent to $1.72 billion from last year. GMAC has had to tighten up its lending standards the past year, thus crimping their potential revenue stream.

A majority of the third quarter loss came from GMAC's ResCap mortgage division. The unit lost $1.9 billion in the quarter and could possibly fail, according to the company.

GMAC said it's discussing with regulators the possibility of becoming a bank holding company, thus enabling them access to federal funds. The company could use those funds to finance operations at ResCap until the unit can right the ship.

Auto lending did not fare very well, losing $294 million in the quarter. The unit posted a $554 million profit in the same quarter last year.

With tighter lending standards in place, GMAC saw new vehicle financing fall to $11.3 billion in the third quarter from $14.5 billion last year.

"This is the most difficult environment we have ever faced," said GMAC CFO Robert Hull, according to Business Week.

GMAC is the financing arm of General Motors and its third quarter loss is expected to weigh on GM's earnings to the tune of $1.2 million.