Depositors and taxpayers could fund home loans and car loans if GMAC Financial Services’ application to become a bank-holding company is approved. The move has the potential to positively impact the mortgage industry more than any other action under the Troubled Asset Relief Program.
The New York-based company announced today that it submitted its application to the Federal Reserve Board of Governors under the Bank Holding Company Act of 1956. If approved, GMAC would become a Utah-chartered Federal Reserve member bank.
GMAC, the parent of Residential Capital LLC and Internet-based GMAC Bank, first disclosed last month that it was considering the move.
Under its proposed structure, GMAC would qualify for desperately needed capital under the Treasury’s capital purchase plan. That plan — which was enacted under H.R.1424, the Emergency Economic Stabilization Act of 2008 — has been funded from $700 billion originally earmarked for troubled mortgage asset purchases. ResCap might have been able to unload illiquid mortgage assets had the funds been used as originally proposed.
ResCap, which had nearly $50 billion in losses during the first three quarters of this year, has drained GMAC of capital. In its third-quarter earnings report, GMAC appeared to be making contingency plans when it began warning that ResCap might not survive.
In today’s announcement, GMAC did not address the ongoing viability of ResCap. But it did say that it had commenced separate private-exchange and cash-tender offers to purchase and exchange some outstanding GMAC and ResCap notes.
General Motors, which shares ownership of GMAC with Cerberus Capital Management L.P., sent Chairman and Chief Executive Officer Rick Wagoner to Capitol Hill this week to plead with lawmakers for a $25 billion auto-industry bailout package. He said vehicle sales have recently plunged and warned of the consequences if the sector failed.
“The societal costs would be catastrophic: three million jobs lost within the first year, U.S. personal income reduced by $150 billion, and a government tax loss of more than $156 billion over three years’ not to mention the broader blow to consumer and business confidence,” Wagoner said.
Enabling GMAC to access capital targeted at bank holding companies would provide much-needed vehicle financing. And if GMAC decides to sustain ResCap — mortgage-sector liquidity could ease.